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Summer Term 2022

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Summer Term 2022

  • August 8, 2022 / 11:00 a.m. / D4.4.008
    Pietro Veronesi (University of Chicago, NBER, and CEPR)
    Title: Self-image Bias and Lost Talent” with Marciano Siniscalchi.

    Abstract: We propose an overlapping-generation model wherein researchers belong to two groups, M or F, and established researchers evaluate new researchers. Group imbalance obtains even with group-neutral evaluations and identical productivity distributions. Evaluators’ self-image bias and mild between-group heterogeneity in equally productive research characteristics lead the initially dominant group, say M, to promote scholars similar to them. Promoted F-researchers are few and similar to M-researchers, perpetuating imbalance. Consistently with the data, our mechanism also predicts stronger and widening group imbalance in top institutions; higher quality of accepted F-researchers; clustering of M- and F-researchers across different fields; greater imbalance for seniors than juniors; less credit for F-researchers in co-authored work; and established researchers’ false perception that increasing F-representation reduces quality. Policy-wise, mentorship reduces group imbalance, but increases F-group talent loss. Affirmative action reduces both.

    Zoom link: Click here to join the meeting

  • June 29, 2022 / 12.00 p.m. / D3.0.218
    Philipp Lentner (Vienna University of Economics and Business)
    Title: Price pressure during central bank asset purchases: Evidence from the covered bond market.

    Abstract: This paper studies how the Eurosystem covered bond purchase program announced on September 4, 2014 affected covered bond data on return performance, yields, issuance and cover pools. In line with inelastic markets, difference-in-difference regressions show that a 1% purchase of outstanding amounts increased bond valuations of German covered bonds by 3.68 bps, relative to a sample of closely matched Scandinavian covered bonds. 85.33% of this effect accrued in the first six weeks of purchases and it reversed by event year three (down to 20.80%). Simultaneously, banks issue abnormal amounts of covered bonds in line with issuers locking in a temporary funding advantage. Evidence from cover pool data shows that banks increased cover pool risk, i.e. lengthened the duration of cover pool assets relative to liabilities by 25%.

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  • June 28, 2022 / 12:00 p.m. / TC.2.03
    Rüdiger Weber (WU Vienna)
    Title: "Money in the right hands: the price effects of specialized demand” with Aleksandra Rzeźnik

    Abstract: We study stock liquidity from a demand-based perspective in the context of mutual fund fire sales. Specifically, we show that active and specialized demand is a key determinant of fire sale price discounts. Only when there is a lack of specialized demand, as proxied by inflows to active, specialized funds, do we observe the marked price pressure effects recorded previously in the literature. Inflows to passive funds have little to no impact on price discounts, pointing to the importance of active mandates for price efficiency. Our findings are robust to using the exogenous variation in fire sale pressure due to the 2003 late trading scandal. Asset quality and adverse selection do not explain the result. Rather, our results suggest inefficient allocations induced by forced sales as an explanation for price pressure. This implies that fire-sale pressure in the absence of active specialized demand can be interpreted as a non-fundamental shock to prices.

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  • June 20, 2022 / 12.30 p.m. / D3.0.218
    Tobin Hanspal (Vienna University of Economics and Business & VGSF)
    Title: “Educating Investors about Dividends” with Andreas Hackethal and Samuel M. Hartzmark

    Abstract: We educate a sample of investors about the benefits of dividend reinvestment and the costs associated with misperceiving dividends as additional, free income. The intervention causes investors to upward adjust planned dividend reinvestment. In the field, these investors become more likely to reinvest their earned dividends into the same asset or into passive funds, relative to previously received dividends and a placebo treatment sample. Investors who stated that they learned the most from the intervention updated their plans and field behavior by the largest extent. Our study documents that simple, targeted, and focused educational interventions can affect downstream investment behavior.

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  • June 15, 2022 / 12.00 p.m. / D3.0.222
    Thomas Dangl (Vienna University of Technology)
    Title:Conservative Holdings, Aggressive Trades: Ambiguity, Learning, and Equilibrium Flows” with Lorenzo Garlappi and Alex Weissensteiner

    Abstract: We propose an equilibrium model of asset prices in which agents learn about the mean and the volatility of the endowment process and differ in their concerns about parameter uncertainty. We show that, in equilibrium, following unexpected bad and good news about economic outcomes (i) uncertainty averse agents increase their risky asset holdings and (ii) the market risk premium rises. These predictions are consistent with observed portfolio flows and risk premia upon profitability surprises. Our model highlights that heterogeneity of preferences and learning about economic uncertainty are key channels for understanding the equilibrium dynamics of portfolio holdings and risk premia following news about economic outcomes.

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  • June 8, 2022 / 12.00 p.m. / D3.0.233
    Giorgio Ottonello (Nova School of Business and Economics)
    Title: "Bank connections and firms' access to the bond market" with Emanuele Rizzo and Rafael Zambrana

    Abstract: Institutional investors-dominated corporate bond markets have become an increasingly important source of financing for U.S. companies. We argue that firms' access to the bond market is constrained by their bank's network of investors. Using a hand-collected dataset of aggregate portfolio transactions between a bank's securities dealer and their mutual fund clients, we map trading networks of banks' underwriters and asset managers between 1995 and 2017. We find that higher exposure to bond investors through bank connections improves a firm's access to bond financing and allows for larger bond issuances. We also show that higher demand from the bank's network of investors allows firms to lower their cost of financing. To identify the causal effect of bank connections on a firm's financing decisions, we exploit exogenous shocks to the formation of underwriter-issuer relationships and to the capital supplied by investors in the bank's network. In examining how bank connections influence financing decisions, we find that the bank's network of investors provides guaranteed demand for a firm's bonds. Our findings add to the debate on whether the existing process for raising corporate debt is an efficient mechanism for bond issuers.

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  • June 2, 2022 / 1.00 p.m. / D3.0.222
    Larry Blume
    (Cornell University)
    Title: “Network Formation in the Presence of Contagious Risk”with David Easley, Jon Kleinberg, Robert Kleinberg and Éva Tardos

    Abstract: There are a number of domains where agents must collectively form a network in the face of the following trade-off: each agent receives benefits from the direct links it forms to others, but these links expose it to the risk of being hit by a cascading failure that might spread over multistep paths. Financial contagion, epidemic disease, the exposure of covert organizations to discovery, and electrical power networks are all settings in which such issues have been articulated. Here we formulate the problem in terms of strategic network formation, and provide asymptotically tight bounds on the welfare of both optimal and stable networks. We find that socially optimal networks are, in a precise sense, situated just beyond a phase transition in the behavior of the cascading failures, and that stable graphs lie slightly further beyond this phase transition, at a point where most of the available welfare has been lost. Our analysis enables us to explore such issues as the trade-offs between clustered and anonymous market structures, and it exposes a fundamental sense in which very small amounts of “over-linking” in networks with contagious risk can have strong consequences for the welfare of the participants

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  • June 1, 2022 / 12.00 p.m. / D3.0.233
    Paul Hübner (UCLA)
    Title: “Persistent latent demand and long-horizon stock returns”

    Abstract: I document that among US institutional investors, characteristics only explain around 15-20% of the variation in stock holdings relative to market weights. The residual latent variation in demand is persistent over time, and slowly mean-reverts. Latent demand generates variation in expected returns both at short and at long horizons. Between 2000-2020, stocks with low latent demand had around 5 percentage points higher returns per year than stocks with high latent demand across horizons that span multiple years. This pattern is particularly strong for stocks with more persistent latent demand, suggesting a role for shock duration in understanding what drives low observed elasticities for stocks.

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  • May 25, 2022 / 11.00 a.m. / hybrid / TC.3.21
    Seppo Ikäheimo
    (Aalto University School of Business)
    Title: "Capital flows and short-termism – evidence from European listed companies 1992-2020” with Arttu Lääkkölä and Vesa Puttonen

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  • May 11, 2022 / 12.00 p.m. / TC.5.27
    Maria Kosolapova (Free University of Bozen-Bolzano)
    Title: "Estimating Time-Varying Risk Aversion from Option Prices and Realized Returns."

    Abstract: We combine risk-neutral densities from equity index options with realized index returns to estimate the market's risk aversion. Starting from a power utility framework with constant risk aversion, we extend it by more flexible stochastic discount factors. We allow for time-varying risk aversion of the marginal investor and we base our estimation as much as possible on forward-looking information. While the levels of the resulting estimates for risk aversion and expected returns are in line with the literature, we find the pricing kernel puzzle to be only an intermittent phenomenon, and our results point to pro-cyclical risk aversion.

  • May 5, 2022 / 12.15 p.m. / TC.4.04
    Rüdiger Weber (Vienna University of Economics and Business & VGSF)
    Title: "Equity Duration, Cash-flow Timing and the Term Structure of Equity” with Dominik Walter

    Abstract: We study the relation between equity duration, cash-flow timing and stock returns. Established measures of equity duration mix up information on the level of discount rates (expected returns) and the timing of cash flows. Regardless of the equity term structure, duration is a monotonically decreasing function of each stock's true market discount rate. Hence, the relation between mean returns and empirical duration measures relying on market-price information is mechanically negative. We therefore introduce new measures of pure cash-flow timing and find an unconditionally flat relation between timing and returns. In line with the qualitative predictions of standard, consumption-based asset pricing it turns out that in recessions (expansion episodes), there is a negative (positive) relation between cash-flow timing and average stock returns.

  • April 20, 2022 / 12.00 p.m. / TC.4.01
    Elias Rantapuska
    (Aalto University School of Business)

    Title: “The Banker in Your Social Network” with Samuli Knüpfer and Theresa Spickers

    Abstract:We study how bankers affect the financial decisions of their social connections. Comprehensive register data allow us to track transitions into the finance industry and to relate these transitions to the individual’s family members’ participation in financial markets. An identification strategy utilizing within-individual variation reveal a strong positive effect of a banker on the participation of her family members. This effect is larger for individuals who do not participate in financial markets, for low-income and low-education individuals, and for riskier asset classes, and it declines in the social distance to the family member. Our results suggest financial expertise travels in social networks. This insight is relevant for understanding the design of policies attempting to improve financial literacy, the impact and value of financial advice, and the value of expertise in financial markets.

    Keywords: Social interaction, peer effects, knowledge spillovers, financial advice

  • April 20, 2022 / 12.00 p.m.
    Alfred Lehar (University of Calgary Haskayne School of Business)
    Title: Decentralized Exchanges” with Christine A. Parlour.

    Abstract: Uniswap is one of the largest decentralized exchanges with a liquidity balance of over 3 billion USD and daily trading volume of over 700 million USD. It is designed as a system of smart contracts on the Ethereum blockchain, and is a new model of liquidity provision, so called automated market making. We collect and analyze data on all 19 million Uniswap interactions from 2018 to the current time. For this new market, we characterize equilibrium liquidity pools and provide evidence that they are stable. We compare this automated market maker to Binance and establish absence of arbitrage and show conditions under which the AMM dominates a limit order market.