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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 bbs-fin­ance@wu.ac.at

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.