Brown Bag Seminar
The Finance Brown Bag Seminar is held jointly with the Vienna Graduate School of Finance (VGSF) and serves as a presentation platform for PhD students, faculty members, and visitors. It usually takes place on Wednesdays from 12:00 to 13:00 (location tba). For further information, please contact email@example.com
Summer Term 2018
June 18th, 2018, 12:00-13:00, D4.0.019
Artashes Karapety (BI Norwegian Business School)
Title: "To Ask or Not To Ask? Collateral versus Screening in Lending Relationships"
Abstract: Using a comprehensive loan-level dataset, we study the impact of bank-firm relationships on collateral requirements both at the beginning of a relationship and over time. First, we exploit the EBA capital exercise, a quasi-natural shock that required increased capital requirements for a number of banking groups in the European Union. This experiment ceteris paribus makes secured lending cheaper vis-`a-vis unsecured lending for the affected banks, since secured loans require less regulatory capital. We find that relative to the control group, the affected banks engaged in more collateralized lending. However, we further find this effect is less pronounced for relationship borrowers. Second, extending the analysis to span nine years of data, we document that to loyal borrowers with long relationship potential, the bank is more likely to offer unsecured credit at the beginning of the relationship, complementing existing evidence that collateral requirements decline over the course of the relationship. The results suggest that relationship banking is important for alleviating credit access - bothduring hard times for banks, as well as at the beginning of borrowers' lives - especially for small, collateral-constrained businesses.
May 29th, 2018, 12:00-13:00, TC 4.12
Youchang Wu (Lundquist College of Business)
Title: "Production Networks and Stock Returns: The Role of Creative Destruction"
Abstract: We study the relation between firms' risk and their upstreamness in a production network. Empirically, the monthly return spread between upstream and downstream firms is 105 bps. We quantitatively explain this novel spread using a multi-layer general equilibrium model. The spread arises from vertical creative destruction -- innovations by suppliers devalue customers’ assets-in-place. We confirm several model predictions, and document additional new facts consistent with vertical creative destruction: a diminished value premium among downstream firms and a negative relation between downstream firms’ returns and their suppliers’ competitiveness. Overall, vertical creative destruction has a sizable effect on cross-sectional risk premia.
May 8th, 2018, 12:00-13:00, D4.0.019
Roberto Steri (HEC Lausanne)
Title: "Stressed Banks"
Abstract: We investigate the risk taking incentives of “stressed banks” — the banks that are subject to annual regulatory stress tests in the U.S. since 2011. We document that stringent capital requirements give both stressed and non-stressed banks motives to invest in risky assets, whose expected returns offset banks’ increased cost of funding, which originates from the use of costly equity capital. Regulatory monitoring through stress tests effectively encourages prudent investment from stressed banks, but also provides them with steeper risk-taking incentives through tighter capital requirements. Our results highlight the importance of regulatory monitoring of banks’ portfolios in parallel to setting more stringent capital requirements.
April 24th, 2018 , 12:00 – 13:00, D5.1.003
Giorgia Simion (Ca' Foscari University of Venice)
Title: "Basel Liquidity Regulation and Credit Risk Market Perception: Evidence from Large European Banks"
Abstract: Following the recent financial crisis, the Basel Committee on Banking Supervision (BCBS) undertook a negotiation process that led to a liquidity reform package known as the new Basel III liquidity framework. This paper aims at assessing the impact of BCBS liquidity regulation announcements on bank creditors. Using an event study on Credit Default Swap (CDS) data of large European banks over the 2007- 2015 period, we found evidence that creditors increased their expectations of a credit event following the regulatory events, with CDS spreads widening. Our results also show that the negative CDS market reaction weakened when banks held higher capital and liquidity funding ratios. On the contrary, the negative CDS market reaction strengthened when banks held higher bad loans. Provisions against loan losses positively moderated such effect. Although credit risk increased during the regulatory events on liquidity, we provide some evidence that if banks correctly adjusted the quality and the mix of their assets and liabilities, they could limit the potential side effects of the adoption of the new rules. Overall, the research contributes into the understanding of the Basel III effects on bank credit risk and financial stability.
April 23rd, 2018, 12:00-13:00, D4.0.019
Julia Reynolds (Università della Svizzera italiana Institute of Finance)
Title: "The Impact of Trade-Through Prohibition on Liquidity Commonality"
Abstract: We examine changes in systemic liquidity risk brought about by Regulation National Market System (Reg NMS), particularly in its provisions against trade-throughs and the subsequent fragmentation of order flow. A dynamic factor model approach allows us to decompose liquidity co-variances into an "exchange-specific" component that is conned to an individual trading venue, and a "market-wide" component that spans across multiple trading venues. The results confirm an overall increase in liquidity co-movements within dollar volumes following the implementation of Reg NMS, supporting the idea of a contagion effect of trade-through protection on liquidity demand shocks. Meanwhile, bid-ask spreads see an overall decrease in liquidity co-movements, driven by a decrease in exchange-specific commonality. Hence, there is evidence for a smoothing effect on shocks to liquidity providers across trading venues under trade-through protection.
April 16th, 2018, 12:00 – 13:00, D4.0.019
Maurizio Montone (Erasmus School of Economics and Tinbergen Institute)
Title: "Does the U.S. President affect the stock market?"
Abstract: I develop an asset pricing model with asymmetric information and short-sales constraints, in which investor beliefs are tied to political outcomes. Consistent with the model's predictions, I find that when sentiment and disagreement over the U.S. President's job are high, subsequent stock returns are low. I also find that the difference in returns between Democratic and Republican administrations, known as the "presidential puzzle'' (Santa-Clara and Valkanov, 2003), is actually driven by political disagreement. Overall, the results support the view that political opinions matter for asset prices.
April 5th, 2018, 12:00-13:00, D4.0.039
Sven Klinger (Norwegian Business School)
Title: "Active Loan Trading"
Abstract: Analyzing a novel dataset of leveraged loan trades executed by managers of collateralized loan obligations (CLOs), we document the importance of "active loan trades" - trades executed at a manager's discretion. Active loan sales are conducted at better prices than non-active sales and before rating downgrades. More active CLOs trade at better prices than less active CLOs, selling leveraged loans earlier and before they get downgraded. More active trading also increases the returns to equity investors and lowers collateral portfolio default rates. In contrast, tests with a placebo variable, capturing passive turnover, lead to insignicant results.
March 14th, 2018, 12:00-13:00, D5.1.003
Hamed Ghoddusi (Stevens Institute of Technology)
Title: "Mortgage Interest Tax Deductibility under Uncertainty" (joint with Mohamad Afkhami (Stevens Institute of Technology)
Abstract: The effective tax shield value of the mortgage interest deductibility (MID) can be significantly lower than what it may seem in the presence of standard deductions. We use a continuous-time contingent claiming framework to quantify the tax shield value of MID under uncertainty. Our pay-off model identifies convexities and concavities in the relationship between the effective mortgage interest tax deduction and a set of the underlying variables including the level and volatilities of household income, house price, and local and state tax rates. The model is simulated for a range of realistic household characteristics. Using the quantitative model we compare the relative attractiveness of an Adjustable Rate Mortgage (ARM) versus a Fixed Rate Mortgage (FRM), and demonstrate an inverse U-shape relation between the tax shield of the two types of mortgages and the household income. We find several inverse-U relationships between the volatility of underlying variables and the present value of the MID. We also offer some preliminary empirical results supporting the theoretical model.