Summer Term 2017

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  • June 21st, 2017, 11:30-12:30, D4.0.022
    Ju­lian Kolm (WU)
    Titel: "Staggered Debt, Banks' Li­quid­ity, and its Reg­u­la­tion"

    Ab­stract: This pa­per ex­plores the im­pact of staggered versus con­cen­trated debt struc­tures on banks' ab­il­ity to sur­vive un­ex­pec­ted cash flow shocks. I show that in order to sur­vive neg­at­ive cash flow shocks, banks with staggered debt need to store more cash than banks with con­cen­trated debt. Li­quid­ity re­quire­ments that re­semble the Basel III Li­quid­ity Cov­er­age Ra­tio provide in­cent­ives for banks to stag­ger their debt, be­cause this al­lows banks to re­duce the amount of cash they need to hold. Li­quid­ity re­quire­ments should ac­count for banks' in­cent­ives to stag­ger their debt in order to en­sure that banks can sur­vive cash flow shocks. Such li­quid­ity re­quire­ments re­duce the mar­ket value of banks' as­sets and their ab­il­ity to provide fin­an­cial in­ter­me­di­ation.

  • June 6th, 2017, 12:00-13:00, D4.0.133
    Phil­ipp Illed­itsch (Whar­ton School of the Uni­versity of Pennsylvania)
    Title: "Dis­agree­ment about In­fla­tion and the Yield Curve" (with Paul Ehling, Mi­chael Gall­meyer, and Chris­tian Heyer­dahl-Larsen)

    Ab­stract: We show that in­fla­tion dis­agree­ment, not just ex­pec­ted in­fla­tion, has an im­pact on nom­inal in­terest rates. In con­trast to ex­pec­ted in­fla­tion, which mainly af­fects the wedge between real and nom­inal yields, in­fla­tion dis­agree­ment af­fects nom­inal yields pre­dom­in­antly through its im­pact on the real side of the economy. We show the­or­et­ic­ally and em­pir­ic­ally that in­fla­tion dis­agree­ment raises real and nom­inal yields and their volat­il­it­ies. In­fla­tion dis­agree­ment is pos­it­ively re­lated to con­sumers’ cross-sec­tional con­sump­tion growth volat­il­ity and trad­ing in fixed in­come se­cur­it­ies. Cal­ib­rat­ing our model to dis­agree­ment, in­fla­tion, and yields re­pro­duces the eco­nom­ic­ally sig­ni­fic­ant im­pact of in­fla­tion dis­agree­ment on yield curves.

  • May 30th, 2017, 12:00-13:00, TC.5.04
    Yuri Tser­lukevich (Ari­zona State Uni­versity)
    Titel: "Em­bra­cing Risk: Hedging Policy for Firms with Real Op­tions" (with Ilona Babenko)

    Ab­stract: This study ana­lyzes the dy­namic risk man­age­ment policy of a firm that faces a tradeoff between min­im­iz­ing the costs of fin­an­cial dis­tress and max­im­iz­ing fin­an­cing for in­vest­ment. Costly ex­ternal fin­an­cing of in­vest­ment dis­cour­ages hedging be­cause of the op­tion to aban­don in­vest­ment at low prof­it­ab­il­ity and the op­tion to ex­pand in­vest­ment at high prof­it­ab­il­ity. Our the­ory gen­er­ates res­ults con­sist­ent with ac­tual policies, without re­ly­ing on the costs of risk man­age­ment. First, we show that firms with safe as­sets and fewer growth op­tions can choose to hedge more ag­gress­ively than firms with risky as­sets. Second, firms prefer to hedge sys­tem­atic rather than firm­-spe­cific risk, even when hedging tech­no­lo­gies for both types of risk are avail­able. Third, risk is op­timal at lower net worth. There­fore, more con­strained firms may ap­pear to hedge less ag­gress­ively.

  • May 29th, 2017, 12:00-13:00, D4.0.039
    Nathan Fo­ley-Fisher (Board of Gov­ernors of the Fed­eral Re­serve Sys­tem)
    "Over­-the-­Coun­ter Mar­ket Li­quid­ity and Se­cur­it­ies Lend­ing" (joint with Stefan Gissler and Stéphane Ver­ani)

    Ab­stract: This pa­per stud­ies how over­-the-­coun­ter (OTC) mar­ket li­quid­ity was ad­versely af­fected by the col­lapse of se­cur­it­ies lend­ing dur­ing the 2007-2008 fin­an­cial crisis. We com­bine mi­cro-data on cor­por­ate bond OTC mar­ket trades with se­cur­it­ies lend­ing trans­ac­tions, in which in­sur­ance com­pan­ies are ma­jor coun­ter­parties. We ex­ploit cross-sec­tional dif­fer­ences in the cor­por­ate bonds held and lent by in­sur­ance com­pan­ies to es­tim­ate the causal ef­fect of se­cur­it­ies lend­ing on cor­por­ate bond mar­ket li­quid­ity. We show that the run on in­surers’ se­cur­it­ies lend­ing pro­grams in 2008 caused a long-last­ing re­duc­tion in cor­por­ate bond mar­ket li­quid­ity, even after con­trolling for the in­ter­ac­tion between fund­ing li­quid­ity and mar­ket li­quid­ity.

  • May 10th, 2017, 13:00-14:00, D4.4.008
    Toni Whited (Uni­versity of Michigan's Ross School of Busi­ness)
    Title: The In­terest Sens­it­iv­ity of Cor­por­ate Cash (with Xiaodan Gao and Na Zhang)

    Ab­stract: We doc­u­ment a hump-shaped re­la­tion­ship between in­terest rates and cor­por­ate cash de­mand that con­tra­dicts con­ven­tional wis­dom, and we develop a the­or­et­ical frame­work to ra­tion­al­ize this find­ing. The model fea­tures ex­ternal fin­an­cing costs that are en­do­gen­ously de­termined by in­terest rates. In­terest rates af­fect cor­por­ate cash de­mand through two chan­nels. First, for­gone in­terest earn­ings im­ply an in­tu­it­ive neg­at­ive re­la­tion. Second, saved ex­ternal bor­row­ing costs im­ply a pos­it­ive re­la­tion. The cal­ib­rated model quant­it­at­ively matches data fea­tures and re­pro­duces the hump-shaped cash-in­terest re­la­tion­ship. This non-­mono­tonic cor­por­ate money de­mand sched­ule has im­port­ant im­plic­a­tions for mon­et­ary policy.  

  • May 2nd, 2107, 12:00-13:00, D4.0.008 
    Leo­pold Sögner (In­sti­tute for Ad­vanced Stud­ies, IHS)
    "Mak­ing Para­met­ric Port­fo­lio Policies Work" (joint with Tho­mas Gehrig and Arne West­er­kamp)

  • April 24th, 2017, 11:00-12:00, D4.0.039
    Lubos Pas­tor (Ch­icago Booth School of Busi­ness)
    "Polit­ical Cycles and Stock Re­turns" (joint with Pi­etro Ver­onesi)

    Ab­stract: We develop a model of polit­ical cycles driven by time-vary­ing risk aver­sion. Het­ero­gen­eous agents make two choices: whether to work in the pub­lic or private sector and which of two polit­ical parties to vote for. The model im­plies that when risk aver­sion is high, agents are more likely to elect the party prom­ising more fis­cal re­dis­tri­bu­tion. The model pre­dicts higher aver­age stock mar­ket re­turns un­der Demo­cratic than Re­pub­lican pres­id­en­cies, ex­plain­ing the well-­known “pres­id­en­tial puzzle”. Un­der suf­fi­cient com­ple­ment­ar­ity between the pub­lic and private sect­ors, the model also pre­dicts faster eco­nomic growth un­der Demo­cratic pres­id­en­cies, which is ob­served in the data.

  • April 13th, 2017, 11:45-13:30,D4.0.039
    Amir Ru­bin
    (Beedie School of Busi­ness)
    "Lured by the Con­sensus: Pri­cing Im­plic­a­tions of Treat­ing All Ana­lysts as Equal" (joint with Roni Mi­chaely, Dan Segal and Al­ex­an­der Vedrashko).

    Ab­stract: We sug­gest a more ac­cur­ate earn­ings fore­cast than the con­sensus by clas­si­fy­ing ana­lysts into high and low qual­ity (HQ and LQ) cat­egor­ies based on their past fore­cast ac­cur­acy. We find that the mar­ket over­weighs the in­form­a­tion con­tent of the con­sensus fore­cast and does not util­ize price-rel­ev­ant in­form­a­tion in the fore­casts and re­com­mend­a­tions of the HQ ana­lysts. The HQ ana­lysts’ re­com­mend­a­tion changes and fore­cast dis­per­sion pre­dict the firm’s stock re­turns and re­turn volat­il­ity next month. Im­port­antly, the PEAD phenomenon is present only when the HQ ana­lysts are re­l­at­ively un­cer­tain. At the ag­greg­ate level, re­com­mend­a­tion changes of the HQ ana­lysts pre­dict fu­ture in­dustry and mar­ket re­turns, while the con­sensus re­com­mend­a­tion changes do not, and mar­ket volat­il­ity is higher fol­low­ing peri­ods of greater un­cer­tainty among the HQ ana­lysts. Over­all, our res­ults in­dic­ate that fix­a­tion on the con­sensus can lead to less ac­cur­ate fore­casts and inef­fi­cient prices.

  • April 5th, 2017, 12:00-13:00 D3.0.221
    Katar­ina Lu­civ­janska (Pa­vol Jozef Sa­farik Uni­versity)
    "Op­timal Gran­u­lar­ity for Port­fo­lio Choice" (joint with Nicole Branger and Alex Weis­sen­steiner)

    Ab­stract: Many op­tim­iz­a­tion-­based port­fo­lio rules fail to beat the sim­ple 1/N rule out-of-sample be­cause of para­meter un­cer­tainty. In this pa­per we sug­gest a group­ing strategy in which we first form groups of equally weighted stocks and then op­tim­ize over the res­ult­ing groups only. In a sim­plied set­ting we show ana­lyt­ic­ally how to op­tim­ize the trade-o between draw­backs from para­meter un­cer­tainty and draw­backs from de­vi­at­ing from the over­all op­timal as­set al­loc­a­tion. We il­lus­trate that the op­timal group size de­pends on the volat­il­ity of the as­sets, on the num­ber of ob­ser­va­tions and on how much the op­timal as­set al­loc­a­tion di­vers from 1/N. Out of sample back­-tests con­firm the valid­ity of our group­ing strategy em­pir­ic­ally.  

  • March 30th, 2017, 13:00-14:00, D4.0.019
    Doron Av­ramov (The Jer­u­s­alem School f Busi­ness Ad­min­is­tra­tion)
    "Bonds, Stocks, and Sources of Mis­pri­cing

    Ab­stract: This pa­per shows that in­vestor sen­ti­ment and fin­an­cial dis­tress jointly drive bond and equity over­pri­cing un­derly­ing mar­ket an­om­alies. In par­tic­u­lar, the in­ter­sec­tion of high sen­ti­ment and rat­ing down­grades of dis­tressed  firms char­ac­ter­izes epis­odes of in­flated bond and stock prices to the ex­tent that as­sets are cor­rectly priced bey­ond such epis­odes. Over­pri­cing among bonds and stocks emerges when sen­ti­ment-driven in­vestors con­sist­ently un­der­es­tim­ate the im­plic­a­tions of  fin­an­cial dis­tress for high credit risk firms.

  • March 6th, 2017, 12:00-13:00, D4.0.039
    Tho­mas Rauter
    "Real Ef­fects of Man­dat­ory Dis­clos­ure"