2020 / 2021

About Chiaki Hara

Title: Comparative Ambiguity Aversion for Smooth Utility Functions

Abstract:

When a twice differentiable utility function represents an ambiguity-averse preference relation over the set of acts on monetary consequences, we define a measure of ambiguity aversion.  The measure is determined by the Hessian of the utility function and the subjective probability derived from it, and allows us to compare two decision makers' measure of ambiguity aversion even when they have different risk attitudes and utility functions of forms that have been characterized by different axioms in the literature.  Implications on the numerical analysis on portfolio

Date: Thursday, 15th October, 13:00 to 14:00

Event Location: Online

Title: Optimism in the Executive Team: Corporate Asset Transactions and Stock Performance

Abstract:

The literature regarding the effects of managerial optimism concentrates on CEOs, all but neglecting the broader executive team. We evaluate the interplay of the optimism levels of the CEOs and CFOs of listed real estate investment trusts, and study the commercial real estate transactions made by the firms led by these teams. We find that firms led by optimistic executive teams pay 2.7% more than their peers for their private asset acquisitions if the cash ratio increase by one percentage point. These firms also exhibit inferior stock performance following their asset acquisitions. Conversely, diverse opinions in the boardroom prevent firms from overpaying on their asset transactions, improving their stock performance relative to optimistic teams. Our findings suggest that diversity in terms of executive optimism is a soft governance mechanism with salience to firm performance.

Date: Thursday 29th October, 13:00 - 14:00

Event Location: Online

Title: Intermediary Financing without Commitment

Abstract:

Intermediaries can reduce agency frictions in the credit market through monitoring. To be a credible monitor, an intermediary needs to retain a fraction of its loans; we study the credit market dynamics when it cannot commit to doing so. We compare the role of certification – monitoring to increase repayment – with the role of intermediation – channeling funds from depositors to the borrower. With commitment to retentions, certification and intermediation
are equivalent. Without commitment, they lead to very different dynamics in loan sales and monitoring. A certifying bank sells its loans and reduces monitoring over time. By contrast, an intermediating bank issues short-term deposits to internalize the monitoring externalities and retain its loans. While the borrowing capacity is higher under intermediation, an entrepreneur may prefer to borrow from a certifying-only intermediary.

Date: Thursday 12th November, 13:00 - 14:00

Event Location: Online

Title: Credit Allocation and Macroeconomic Fluctuations 

Written by Karsten Müller and Emil Verner

Abstract:

We study the relationship between credit expansions, macroeconomic fluctuations, and financial crises using a novel database on the sectoral distribution of private credit. Constructed from more than 600 sources, these data allow us to map the sectoral allocation of credit across 116 countries starting in 1940 while matching data on total credit from existing sources. Equipped with this new resource, we document a striking shift in the composition of credit away from primary and manufacturing sectors toward households, construction, real estate, and other non-tradable sectors over the past five decades. Motivated by several salient case studies, including the Eurozone and Japanese banking crises, we then ask whether the allocation of firm credit across different industries plays a role in macroeconomic fluctuations. We find stark differences between different varieties of corporate credit expansions. In particular, we show that lending to the construction, real estate, and non-tradable sectors are associated with a boom-bust pattern in output and elevated financial crisis risk, similar to household credit booms. In contrast, there is no such pattern for tradable-sector credit expansions, which are often followed by stronger output growth. These patterns reject models in which debt plays a uniform role and instead support the idea that pre-determined differences across sectors shape interactions between finance and the real economy.

Date: Thursday 26th November, 13:00 - 14:00

Event Location: Online

About Raman Uppal

Title: Investor Confidence and Portfolio Dynamics

Abstract:

To explain the empirically observed heterogeneity in household portfolio and wealth dynamics, we develop a general-equilibrium framework with multiple risky assets along with households that differ in their confidence about the return pro-cess for the risky assets. Consistent with recent empirical evidence, less-confident households overinvest in safe assets, hold underdiversified portfolios concentrated in familiar assets, are trend chasers, and earn lower absolute and risk-adjusted investment returns. More confident investors hold riskier positions and exhibit superior market-timing abilities. The model also explains why this investment behavior, despite Bayesian learning and optimal decision, persists for long periods, thereby exacerbating wealth inequality.

Date: Thursday 28th January, 13:00 - 14:00

Event Location:  Online

About John Matsusaka

Title: A Theory of Proxy Advice when Investors Have Social Goals

Abstract:

This paper studies the conditions under which the proxy advice market helps and hinders corporate governance. A key assumption is that investors are heterogeneous, with some focusing only on returns while others also have nonpecuniary goals, such as environmental sustainability and protection of human rights. Proxy advisory firms compete for business by choosing a scale of production, price, and “slant” of advice. Heterogeneous demand creates pressure for the market to offer an array of advice, but there is a countervailing force: when demand is sufficiently large, suppliers adopt a “platform” technology and consolidate into a natural monopoly. Under conditions that seem empirically relevant, the platform monopolist slants its advice toward the preferences of investors with non-value-maximizing goals, thereby steering corporate elections away from value maximization. We characterize the conditions under which the proxy advice market succeeds and fails, discuss policy reforms that would help it succeed, and develop normative principles for assessing proxy advice when value maximization is not the sole objective of investors.

To download full paper, click here.

Date: Thursday 11th February, 13:00 - 14:00

Event Location: Online

Title: Injunction Risk, Technology Commercialization, and Profitability

Abstract:

Routinely granted injunctions during patent lawsuits have been regarded as a significant obstacle to firm innovation. We use the 2006 Supreme Court ruling in eBay v. MercExchange that reduced injunction likelihood in cases related to information and communications technology (ICT) patents to examine the effects of injunction risk on firms’ technology commercialization and market value. We find that firms with reduced injunction risk experience faster technology commercialization and higher profitability. Moreover, stock market investors react favorably to alleged infringing firms that are subject to reduced injunction risk, particularly when the litigation receives greater attention.  

Date: Thursday 25th February, 13:00 - 14:00

Event Location:  Online

About Cameron Peng

Title: Factor demand and factor returns

Abstract:

A mutual fund’s demand for a pricing factor, measured by the loading of the fund’s returns on the factor’s returns, is persistent over time. When stock characteristics are time-varying and change frequently, persistence in factor demand generates a need for rebalancing. This rebalancing motive, in turn, leads to predictable trading from mutual funds and contributes to cross-sectional return predictability. In particular, when there is a “mismatch” between a stock’s characteristic and the underlying funds’ demand for that characteristic, the “mismatched” stock will face selling pressure from the underlying funds and subsequently earn lower returns. Double-sorting on stocks’ characteristics and mutual funds’ factor demand refines value and momentum strategies, generating abnormal returns that cannot be explained by subsequent fundamentals or retail trading flows.

Date:

Thursday 11th March, 13:00 - 14:00

Event Location: Online

About Rob Engle

Title: Climate Risk and the Pandemic

Abstract: Not Disclosed

Date: Thursday 6th May, 17:00 - 18:00

Event Location: Online

About Maria-Teresa Marchica

Title: Women in the Financial Sector

Abstract:

Using administrative micro data from the U.K., we examine the evolution and sources of the gender pay gap in finance. We show a persistently larger gender pay gap in finance over the last two decades, as compared to other sectors in the economy, even after controlling for firm and worker observable characteristics. Using workers who switch firms, we find that the gender pay gap in finance is predominantly explained by high-skill male workers sorting into finance relative to other sectors. Firm-specific pay premiums explain a smaller part of the gender pay gap in finance. We also show that the U.K. 2017 reform, that requires firms to publicly disclose the firm average gender pay gap, was successful into reducing the gender pay gap in the finance sector.

Date: Thursday 20th May, 13:00 - 14:00

Event Location:  Online

About Lorenzo Garlappi

Title: Group-Managed Real Options

Abstract:

We study a standard real-option problem where sequential decisions are made through voting by a group of members with heterogeneous beliefs. We show that, when facing both investment and abandonment timing decisions, the group behavior cannot be replicated by that of a representative ``median'' member. As a result, members' disagreement generates inertia---the group delays investment relative to a single-agent case---and underinvestment---the group rejects projects that are supported by a majority of members, acting in autarky. These coordination frictions hold in groups of any size, for general voting protocols, and are exacerbated by belief polarization.

To read the full paper click here

Date: Thursday 3rd June, 13:00 - 14:00

Event Location:  Online

About Lucas Mahieux

Title: Asset Transfer Measurement Rules

Abstract:

We study the design of measurement rules when banks engage in loan transfers in secondary credit markets. Our model incorporates two standard frictions: 1) banks' monitoring incentives decrease in loan transfers, and 2) banks have private information about loan quality. Under only the monitoring friction, we find that the optimal measurement rule sets the same measurement precision regardless of bank characteristics, and strikes a balance between disciplining banks' monitoring efforts vs. facilitating efficient risk sharing. However, under both frictions, uniform measurement rules are no longer optimal but induce excessive retention, thus inhibiting efficient risk sharing. We show that the optimal measurement rule should be contingent on the amount of loan transfers. In particular, measurement decreases in the amount of loan transfers and no measurement should be allowed when banks have transferred most of their loans. We relate our results to current accounting standards for asset transfers.

To download the full paper click here

Date: Thursday 17th June, 13:00 - 14:00

Event Location: Online