Dr Maria Bustamante (LSE)
Title: Product Market Competition and Industry Returns
Abstract:
This paper documents that product market competition has two opposing effects on asset returns. We find that firms in more competitive industries have less valuable growth options and thus lower loadings on systematic risk. We also find that these firms have lower profit margins which make them more exposed to systematic shocks. The first effect dominates the second, so that firms in more competitive industries earn lower asset returns on average. Our empirical findings are robust to using five alternative empirical measures of competition, and to controlling for the sample selection bias of publicly listed firms.
Date: Thursday 23rd January, 17:00 - 18:00
Event Location: Newnham College
Mark H. A. Davis (Imperial College London)
About Mark H. A. Davis
Title: Consistency of Risk Measure Estimates
Abstract:
Recently there has been renewed debate about the relative merits of VaR and CVaR as measures of financial risk. VaR is not coherent and does not qantify the risk beyond VaR, while CVaR shows some computational instabilities and is not "elicitable" (Gneiting 2010, Zwiebel 2013). It is argued in this talk that such questions are best addressed from the point of view of probability forecasting or Dawid's "prequential statistics". We introduce a concept of "consistency" of a risk measure, which is close to Dawid's "strong prequential principle", and show that VaR indeed has special properties not shared by any other risk measure.
Date: Thursday 6th February, 17:30 - 18:30
Event Location: Bridgetower Room, Trinity Hall
Harjoat Bhamra (Imperial College London)
Title: Financial Fragility & Incentives
Abstract: Abstract Unavailable.
Date: Thursday 20th February, 17:00 - 18:00
Event Location: Room W2.02 Cambridge Judge Business School
Maureen O’Hara (Cornell)
Title: Relative Tick Size and the Trading Environment
Abstract:
Recent proposals to raise the tick size on small stocks bring attention to the role played by market structure in shaping the trading environment and ultimately in capital formation. In this paper, we look at the how the relative tick size influences liquidity and the biodiversity of trader interactions in the market. Using unique order-level data from the NYSE, we find mixed evidence on whether a larger relative tick size enhances liquidity. Specifically, depth closer to market prices as well as fill rates of limit orders are higher with a larger relative tick size, but resiliency of depth at the best prices is lower and there is a shift to less displayed depth. We observe that high-frequency trading firms that operate as market makers on the NYSE take on a more prominent role in liquidity provision for stocks with larger relative tick sizes: spending more time at the quote, improving market-wide prices, and increasing their participation in trading. A larger relative tick size does not, however, seem to attract more overall trading volume from investors to the stocks, and we find that some volume shifts from the primary market to other (non-exchange) trading venues.
Date: Thursday 1st May, 17:00 - 18:00
Event Location: Graham Storey Room, Trinity Hall
Woo Chang Kim (Princeton)
About Woo Chang Kim
Title: Understanding Robust Portfolios
Abstract:
Robust portfolio optimization has been developed to resolve the high sensitivity to inputs of the Markowitz mean-variance model. The main idea is to introduce an uncertainty set for the model parameters, and to obtain the portfolio with worst-case optimization approach. Although much effort has been put into forming robust portfolios, there have not been many attempts to analyze the characteristics of portfolios formed from robust optimization. In this presentation, we discuss the recent finding on the qualitative characteristics of the robust portfolios. More specifically, there are three main questions to be addressed:
1) Is robust portfolio really robust?
2) Robust portfolio is different from traditional mean-variance portfolio. Is there any consistent
pattern in regard to this qualitative difference in two portfolios?
3) If robust portfolio is consistently different from traditional mean-variance portfolio, is it possible
to reduce the difference without losing the robustness?
Date: Thursday 8th May, 17:00 - 18:00
Event Location: Barbara White Room, Newnham College
Wang Neng (Columbia University)
About Wang Neng
Title: Investment, Liquidity, and Financing under Uncertainty
Abstract:
We develop a real options model for a financially constrained firm. Facing external financing costs, the firm prefers to fund its investment through internal funds, so that the firm's optimal investment policy and its value depend on the size of its liquidity holdings. We show that financial constraints significantly alter the standard real options results. Importantly, the investment hurdle is highly non-monotonic in the firm's internal funds as the firm may prefer accumulating internal funds rather than accessing costly external capital markets when internal funds are sufficiently high. Additionally, the firm's external equity issue is non-monotonic in its liquidity holdings. With multiple rounds of growth options, a value-maximizing financially constrained firm may choose to exercise its growth option sooner that the first-best level in earlier stages in order to mitigate delayed growth option exercising in later stages. Our analysis brings out the rich and subtle interactions between sources of funds (external, internal, and endogenous retained earnings) and the optimal exercising of investment and abandonment options.
Date: Thursday 15th May, 17:00 - 18:00
Event Location: Bridgetower Room, Trinity Hall
Adair Turner, Baron Turner of Ecchinswell
About Adair Turner:
Title: Finance and the Real Economy
Abstract: Abstract Unavailable.
Date: Monday 19th May, 17:00 - 18:00
Event Location: Lucia Windsor Room, Newnham College
Alejandro Reynoso (Investment Banking Unit)
Title: First-In-Class: Three Cases of Financial innovation in Mexico
Abstract:
This is a document that presents three examples of development and implementation of first-in-class financial products in Mexico led by the author between 2011 and 2014. The first hedge fund, the first fundamentally weighted ETF and the first REIT.
Each one of the cases is presented in a way that highlights the connection between concrete market needs, the use of contemporary tools for analysis and design and a pragmatic adaptation of the ideas to the market infrastructure and legal and tax environment.
From a technical standpoint the cases highlight the use of tools such as the design of expert systems for hedge fund asset allocation algorithms, constrained and unconstrained dynamic portfolio optimization and the application of Simulink to solving dynamic non-linear deterministic and stochastic programming models characteristic of structured contracts like REITS
All cases also leave the reader with some useful references for further academic work. For example we found the factor-loading specification of a long-short technically based hedge fund by doing the reverse-engineering of the fund described in the document. We also highlighted the factors that emerge from optimized indexes and addressed issues of optimal contracting and solutions to the principal-agent contradictions in the specific structures of the Mexican REITS.
Date: Thursday 29th May, 17:00 - 18:00
Event Location: Barbara White Room, Newnham College
Sheridan Titman (University of Texas)
About Sheridan Titman
Title: Investor Composition and Liquidity: An Analysis of Japanese Stocks
Abstract: Abstract Unavailable.
Date: Wednesday 4th June, 17:30 - 18:30
Event Location: Lecture Theatre 1, Cambridge Judge Business School
Jose A. Scheinkman (Columbia University)
About Jose A. Scheinkman
Title: Misspecified Recovery
Abstract:
Asset prices contain information about the probability distribution of future states and the stochastic discounting of those states as used by investors. To better understand the challenge in distinguishing investors' beliefs from risk-adjusted discounting, we use Perron-Frobenius Theory to isolate a positive martingale component of the stochastic discount factor process. This component recovers a probability measure that absorbs long-term risk adjustments. When the martingale is not degenerate, surmising that this recovered probability captures investors' beliefs distorts inference about risk-return tradeoffs. Stochastic discount factors in many structural models of asset prices have empirically relevant martingale components.
Date: Thursday 9th October, 17:00 - 18:00
Event Location: Room W4.03, Cambridge Judge Business School
Daniel Paravisini (LSE)
About Daniel Paravisini
Title: Comparative Advantage and Specialization in Bank Lending
Abstract:
We develop an empirical approach for identifying comparative advantages in bank lending. Using matched credit-export data from Peru, we first uncover patterns of bank specialization by export market: every country has a subset of banks with an abnormally large loan portfolio exposure to its exports. Using outliers to measure specialization, we use a revealed preference approach to show that bank specialization reflects a comparative advantage in lending. We show, in specifications that saturate all firm-time and bank-time variation, that firms that expand exports to a destination market tend to expand borrowing disproportionately more from banks specialized in that destination market. Bank comparative advantages increase with bank size in the cross section, and in the time series after mergers. Our results challenge the perceived view that, outside relationship lending, banks are perfectly substitutable sources of funding.
Date: Thursday 16th October, 17:00 - 18:00
Event Location: Barbara White Room, Newnham College
Fabio Braggion (Tilburg University)
About Fabio Braggion
Title: The Economic Impact of a Bank Oligopoly: Britain at the Turn of the 20th Century
Abstract:
We investigate the impact of the formation of the "Big 5" highly concentrated banking market in England and Wales. By 1920 five banks controlled 80% of the deposit base, following several decades of mergers and acquisitions and aggressive branch expansion. Borrowers in the counties that experienced higher bank concentration received smaller loan, had to post more collateral, and were granted loans of shorter duration.In those high concentration counties, the quality of loan applicants had improved, which suggests that it is likely the oligopoly restricted credit, rather than changing the quality of loan applicants. We find signs that bank concentration negatively impacted local economies. Counties with a more concentrated banking system generated lower tax revenues and experienced slower firm incorporation.
Date: Thursday 14th November, 17:00 - 18:00
Event Location: Room W4.03, Cambridge Judge Business School
Jan Obloj (University of Oxford)
Title: Robust vs realistic: interpolating between model-specific and model-free settings for pricing and hedging
Abstract:
Classical models in mathematical finance, even if highly complex, typically share important methodological weaknesses: failure to account for model uncertainty and failure to incorporate market information in a consistent manner. In the wake of financial crisis these have been much debated. In response, an increasingly active field of research focuses on model-free super/sub-hedging using the underlying and Vanilla options. Explicit results often rely on pathwise inequalities and embedding techniques while pricing-hedging duality is obtained using martingale optimal transport methods. However, the resulting prices and hedges are often too expensive to be practically relevant. In this talk I show how to interpolate between the two worlds. I argue that quoted option prices should be incorporated through distributional constraints while beliefs, or past data, are most naturally included through pathwise restrictions. The resulting framework is robust and flexible. It allows for realistic outputs while quantifying the impact of making assumptions. I will present abstract results about pricing-hedging duality and then discuss examples of restrictions on future realised volatility and future option prices.
Date: Thursday 27th November, 17:00 - 18:00
Event Location: Room W4.03, Cambridge Jude Business School