Dennis Hamilton
I am a doctoral candidate in finance at the University of Iowa's Tippie College of Business, and I will be on the job market this fall and winter.
My research studies the causes and consequences of financial intermediary behavior. My job market paper examines the unintended consequences of a Basel III regulation—the increased marking to market of regulatory capital— for banks' commitment to market making. I study banks' strategic response as they trade off balance sheet liquidity for regulatory capital stability as well as the spillover effects for capital market liquidity. My other working papers and projects study capital market solutions to shareholder-creditor conflicts, the role of lenders as information channels between peers and adverse selection in sports betting markets.
I will be available for interviews at both the FMA Annual Meeting in New Orleans and the AFA Annual Meeting in San Diego. My job market paper is on the FMA conference program and will also be presented as part of the FMA Doctoral Student Consortium.
JOB MARKET PAPER
- Abstract:
Banks increased held-to-maturity (HTM) classifications by more than $600 billion between 2010 and 2016 despite binding sale restrictions that render HTM securities illiquid. They accepted this friction in order to protect regulatory capital ratios from Basel III’s expanded marking to market of fixed income security portfolios. I find the unprecedented rise in restrictive HTM classifications crowds out dealer inventories, resulting in constrained market making capacity and reduced liquidity provisions by banks. Ultimately, market liquidity worsens for securities most frequently classified as HTM. Contemporaneous regulations are ruled out through analyses of treated and control banks, dealers, asset classes and mortgage-backed securities.
OTHER WORKING PAPERS
Dual Ownership as a Market Solution to Risk Shifting: Evidence from Loan Covenant Violations (with Steven Irlbeck and Eric McKee)
- Abstract:
We examine a capital market solution initiated by investors in response to an increase in wealth transfer risk. Shareholders and creditors have competing claims on the firm, but when investors own both debt and equity in the same company, dual ownership, the dual owner’s incentive for wealth transfer risk decreases. Utilizing a regression discontinuity design and loan covenant violations as an exogenous shock to wealth transfer risk, we show creditors respond by increasing their equity holdings in the violating firms for the year following the covenant violation, thus resulting in an increase of dual ownership. Furthermore, the number of dual owner investors also increases in the following year. We also distinguish by creditor type and find our results are driven by the bondholders who have less ability to directly protect the value of their claims. On the other hand lenders, who receive greater control rights upon violation, do not increase dual ownership. The effect is stronger in financially distressed firms and when there is a greater marginal benefit of dual ownership. Overall, the results highlight a self-regulating investor mechanism that reduces agency problems between shareholders and creditors and that the type of debt at risk impacts the importance of dual ownership.
TEACHING EXPERIENCE
Introduction to Financial Management, Independent Instructor for University of Iowa
- Online section, every semester Fall 2015 - Spring 2017
Introduction to Financial Management, Teaching Assistant for University of Iowa
- Classroom Facilitator for "flipped course" format, Fall 2017, Fall 2018 & Fall 2019
- Discussion section lecturer, Spring 2019
The Mathematics of Money, Independent Instructor for Johns Hopkins' Center for Talented Youth Program
- University of Hong Kong campus, July 2018 & July 2019