2023 / 2024
CERF / Cambridge Finance Seminars in Chronological Order
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Kai Liu (University of Cambridge)
Kai Liu (University of Cambridge)
Title: Returns to Education with Earnings Uncertainty and Employment Risk over the Life Cycle
Abstract:
The trade-off between risk and return plays a central role in empirical work on investment in physical capital. In contrast, this trade-off has received little attention in the empirical literature on investment in human capital. To date, there is little causal evidence on how education affects life-cycle earnings profiles, earnings uncertainty, and unemployment risk. Yet theory suggests these factors could be important both to accurately measure the returns to education, to explain the decision to invest or not in education, and to understand the observed earnings dynamics and inequality over the life-cycle. The primary contribution of our paper is to incorporate earnings uncertainty and employment risk in the empirical measurement of the returns to education. To do so, we first characterize the causal relationship between schooling and earnings over the life-cycle, following the same individuals across their working lifespan. This relationship allows us to draw conclusions about how additional schooling affects the level and dispersion of earnings over the life cycle. To try to disentangle uncertainty from heterogeneity, we next model the underlying earnings process, targeting the estimated causal relationship between schooling and earnings over the life-cycle. We then fit a life-cycle model with precautionary saving motive to the estimated earnings process and observed consumption profiles. The estimated model allows us to quantify how earnings uncertainty and employment risk affect the incentives to invest in education, and to examine the extent to which the progressive tax-transfer system distorts these incentives.
Date: Thursday 12th October, 13:00 - 14:00
Event Location: Castle Teaching Room, CJBS
Alex Tse (UCL)
Alex Tse (UCL)
Title: Periodic portfolio selection with quasi-hyperbolic discounting
Abstract:
We introduce a continuous-time portfolio selection problem faced by an agent with S-shaped preference and present bias, whose goal is to maximise utilities derived from the portfolio’s periodic performance over an infinite horizon. The underlying quasi-hyperbolic discount function induces time-inconsistency and different notions of optimality are discussed. Interestingly, there are cases in which agent’s present bias and naivety will result in more desirable risk-taking behaviours via moderating excessive leverage and underinvestment in the extreme states of the world.
Date: Thursday 26th October, 13:00 - 14:00
Event Location: Castle Teaching Room, CJBS
Hormoz Ramian (University of Glasgow)
Hormoz Ramian (University of Glasgow)
Title: The Behavioral Policy Uncertainty Channel and Fiscal Analysis: Theory and Evidence
Abstract:
We show that the behavioural drivers of the equilibrium asset prices pose as a significant uncertainty channel to policymakers. Whilst policymakers maintain an information superiority based on the supply side operations, their decisions often lead to suboptimal welfare implications particularly due to the behavioural information constraints. This study presents a formal macro-finance framework where asset prices are determined due to both physical and behavioural drivers where the society’s behavioural responses to policies remain uncertain. We show that failure to incorporate an accurate account over the behavioural drivers lead to heighted risk premia, significant financial market drawbacks and negative real economic implications.
Date: Thursday 9th November, 12:00 - 13:00
Event Location: Lombard Room, Hotel Du Vin
Grzegorz Pawlina (Lancaster University)
Grzegorz Pawlina (Lancaster University)
Please Note: Due to Unforeseen Circumstances, this event was cancelled.
Title: The Dynamics of Stock Repurchases
Abstract:
We develop a model of the timing of share repurchases within a duopolistic industry to analyze the dynamics of share repurchases in the context of the ‘peer effect’ documented in the extant empirical literature. Share repurchase decisions are taken as part of a broader liquidity management policy but also take into account i) the firm’s financial resources needed to invest in a potential growth opportunity, and ii) the feedback effect of the competitor’s investment threat on the firm’s willingness to hold cash to respond to such a threat. We derive the equilibrium timing of such strategic repurchases of both firms and generate a number of empirical predictions regarding the expected strength of the peer effect. Subsequently, based on the universe of Compustat firms from 1971-2019, we find empirical support for the key model predictions: the peer effect is weakened by the degree of product market competition, financial constraints, and stock illiquidity. Finally, we also present evidence of several cross-effects that are consistent with model predictions.
Date: Thursday 23rd November, 13:00 - 14:00
Event Location: Not Disclused
Maria Bigoni (University of Bologna)
Maria Bigoni (University of Bologna)
Title: How to discipline financial markets: reputation is not enough
Abstract:
Historically, shocks originating in the financial sector often spilled over into the real sector with dramatic consequences. We study in the lab how interventions targeting disclosure and capital requirements of financial intermediaries can reduce insolvencies or prevent their negative effects from propagating to the broader economy. In our two-sector economy, consumers and producers can fund financial intermediaries, who in turn provide them with liquidity to settle trades. However, intermediaries may undertake risky investments and become insolvent, which depresses real economic activity. In the experiment, insolvencies were frequent. As a consequence, consumers and producers often refused to fund intermediaries, which lowered the trade volume. Imposing the disclosure of risky investments did not reduce risk-taking and insolvencies. Instead, imposing capital requirements prevented insolvencies from disrupting real economic activity, thus boosting financial intermediation and trade.
Date: Thursday 25th January, 12:30 - 13:30
Event Location: W4.03, CJBS
Ranjani Krishan (Michigan State University)
Ranjani Krishan (Michigan State University)
Title: Board Gender Diversity, Innovation Ambidexterity, and Firm Performance
Abstract: Not Provided by Author.
Date: Thursday 8th February, 13:00 - 14:00
Event Location: Lombard Room, Hotel du Vin
Paul Schneider (Swiss Finance Institute)
Paul Schneider (Swiss Finance Institute)
Title: Nonparametric conditional factors for unbalanced panels
Abstract:
We introduce a nonparametric estimator for conditional covariance matrices of unbalanced panels. Our approach naturally accommodates a low-dimensional nonlinear factor structure that ensures all structural relations between moments. In high-dimensional large-data applications, we investigate various conditional return expectation and covariance models that depend on asset characteristics. The empirically successful models imply substantial conditional Sharpe ratios, along with respectable ordinal and point predictions. Our approach can easily be extended to accommodate higher-order moments and comes with asymptotic theory that can be used with large unbalanced panels.
Date: Thursday 22nd February, 12:00 - 13:00
Event Location: W4.03, CJBS
Savitar Sundaresan (Imperial College London)
Savitar Sundaresan (Imperial College London)
Title: The Origins of Random Choice
Abstract:
Using lab data on both choices and eye-movements we exam the relationship between randomness in choice and attention. We bring in 50 subjects and have each make 180 choices, involving repeated choices from the same choice sets, while tracking their eye movements. Our approach allows us to consider attention as a multi-dimensional object and link different aspects of attention to distinct patterns in choice. We show that although the monotonicity condition that underlies random utility models is frequently violated, the monotonicity condition on attention sets considered by Cattaneo et al., 2020 is satisfies by almost all observations. Despite this, attention explains at most around a third of the randomness in choice. Although randomness in choice is much larger at the aggregate compared to the individual level, attention explains randomness in choice to the same degree in both. In ongoing work we conduct revealed preference tests of both random utility and random attention models.
Date: Thursday 7th March, 13:00 - 14:00
Event Location: Castle Teaching Room, CJBS
Lin Shen (INSEAD)
Lin Shen (INSEAD)
Title: Policy Portfolio for Banks: Deposit Insurance and Ex-post Liquidity Injection
Abstract:
Banking crises pose significant threats to our economy, leading to the implementation of policy measures such as deposit insurance and liquidity injection to strengthen financial stability and optimize resource allocation efficiency. This paper investigates the dynamic interplay between deposit insurance and liquidity injection. Facing uncertainty regarding bank health and depositor liquidity shocks, policymakers decide liquidity injection based on withdrawals. While higher deposit insurance coverage can mitigate panic runs, it may undermine the effectiveness of liquidity injections. We demonstrate that liquidity injection overshadows deposit insurance. Consequently, the optimal policy portfolio entails zero deposit insurance, enhancing resource allocation efficiency but leading to more panic runs.
Date: Thursday 2nd May, 13:00 - 14:00
Event Location: W2.02, Main CJBS Building
Simon Gervais (Duke)
Simon Gervais (Duke)
Title: Money Management and Real Investment
Abstract:
We propose and analyze an equilibrium model of money management in which the asset allocation decisions of money managers affect the production decisions of firms. The model produces two main results. First, comparing the performance of money managers to that of the overall market portfolio becomes less appropriate as investors (endogenously) choose to delegate more of their money to them. Indeed, as money managers control more money, their holdings get closer to the market portfolio, making it less likely that they outperform it. Second, although money managers may be outperformed by the market portfolio after their fees are taken into account, it is optimal for investors to hire their services. This is because money managers prompt a more efficient allocation of capital, making the economy more productive and firms more valuable in the process. In fact, as we show, the presence of money managers can improve the welfare of all investors, whether or not these investors choose to delegate their investment decisions to money managers.
Date: Thursday 16th May, 12:30 - 13:30
Event Location: Castle Teaching Room, CJBS
Chi-Yang Tsou (University of Manchester)
Chi-Yang Tsou (University of Manchester)
Title: Financial Frictions and Pollution Abatement Over the Life Cycle of Firms
Abstract:
This paper examines how firms’ investments in pollution abatement are influenced by financial frictions and policy uncertainty. Our data analyses suggest that financially constrained firms are less likely to invest in pollution abatement and are more likely to release toxic pollutants. Such a pattern is intensified by policy uncertainty measured by close gubernatorial elections or uncertainty revealed in firms’ earnings conference calls. We then develop a heterogeneous firm general equilibrium model, in which financially constrained firms face increased marginal costs of finance from pollution abatement. The marginal costs of finance are further amplified by policy uncertainty in environmental regulation, reducing firms’ pollution prevention. The aggregate effect of environmental policy may therefore depend on the distribution of financial frictions and policy uncertainty.
Date: Thursday 30th May, 13:00 - 14:00
Event Location: Room W2.01, CJBS
Russell Lundholm (University of British Columbia)
Russell Lundholm (University of British Columbia)
Title: Estimating the Private Value of Financial Statement Statistics; the abstract is below. I hope to have a revised version ready closer to the actual presentation date.
Abstract:
We develop a method for estimating the private value of knowing the future realization of some financial statistic and then apply the measure to the familiar ratios arising from the Dupont decomposition of return on equity. The estimation is grounded in the standard rational expectations model, adapted to accommodate relative risk aversion, and produces an investor’s willingness to pay for the signal. The method can accommodate different levels of investable wealth, multiple assets, and any information system that produces signals about those assets. To illustrate the use of this measure, we show that knowing next year’s return on equity, given that the investor already knows the current value, is worth six times more than knowing the value of next year’s sales growth. And, as predicted by the Dupont model, we find the value of knowing next year’s operating asset turnover depends crucially on the level of the operating profit margin. Finally, we show that knowing next year’s leverage is practically worthless. Given that investors face trade-offs when deciding where to expend effort in financial statement analysis, these estimates can help them to know where to allocate their time.
Date: Thursday 13th June, 13:00 - 14:00
Event Location: Room W4.05, CJBS
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