Kjell G. Nyborg (University of Zurich)
About Kjell G. Nyborg
Title: Central Bank Collateral Frameworks
Abstract:
This paper seeks to inform about a feature of monetary policy that is largely overlooked, yet occupies a central role in modern monetary and financial systems, namely central bank collateral frameworks. Their importance can be understood by the observation that the money at the core of these systems, central bank money, is injected into the economy on terms, not defined in a market, but by the collateral frameworks and interest rate policies of central banks. Using the collateral framework of the Eurosystem as a basis of illustration and case study, the paper brings to light the functioning, reach, and impact of collateral frameworks. A theme that emerges is that collateral frameworks may have distortive effects on financial markets and the wider economy. They can, for example, bias the private provision of real liquidity and thereby also the allocation of resources in the economy as well as contribute to financial instability. Evidence is presented that the collateral framework in the euro area promotes risky and illiquid collateral and, more generally, impairs market forces and discipline. The paper also emphasizes the important role of ratings and government guarantees in the Eurosystem’s collateral framework.
Date: Thursday 21st January, 13:00 - 14:00
Event Location: Room W4.05, Cambridge Judge Business School
Raghavendra Rau (Cambridge Judge Business School)
About Raghavendra Rau
Title: Are Serial Acquirers Born or Made
Abstract:
Serial acquirers conduct the vast majority of acquisitions in the U.S. We show that serial acquirers are not all alike. There is considerable heterogeneity in acquirer types, with four major types of acquirers common in the data – loners, occasional acquirers, sprinters, and marathoners. Importantly, these acquirers can be distinguished on an ex ante basis. Marathoners comprise the most efficient acquirers who learn from prior acquisitions. Peer effects and overvaluation matter for sprinters who acquire large numbers of targets in short intervals. Path dependency typically does not matter in making an acquirer a serial acquirer.
Date: Thursday 4th February, 13:00 - 14:00
Event Location: Lecture Theatre 2 Cambridge Judge Business School
Michael Haliassos (University of Frankfurt)
About Michael Haliassos
Title: Incompatible European Partners? Cultural Predisposition and Household Financial Behaviour
Written in collaboration with Thomas Jansson (Sveriges Riksbank) and Yigitcan Karabulut (Rotterdam School of Management, Erasmus University and CEPR).
Abstract:
The recent influx of migrants and refugees into Europe and elsewhere raises questions as to whether migrant behavior reflects cultural predispositions and whether those prevent assimilation through exposure to host institutions. The paper focuses on financial behavior and uses administrative data on migrants and refugees to Sweden to study differences across cultural groups in the relationship of behavior to underlying household characteristics. It shows that such differences do exist but they diminish with exposure to host country institutions, even when cultural distances are large. Viewed from a different angle, our results also have implications for the potential of European institutional harmonization, exogenously imposed in the context of the fiscal crisis, to alleviate cultural differences in financial behavior. Finally, we find that robust cultural classification of European countries, based on genetic distance or on Hofstede’s cultural dimensions, fails to identify a single ‘southern’ culture but points to a ‘northern’ culture.
Date: Thursday 18th February, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Sudipto Dasgupta (HKUST)
Title: Innovation, Social Connections, and the Boundary of the Firm
Abstract:
In this paper, we propose and provide evidence that the existence of prior social connections between managers or board members of supplier (upstream) and customer (downstream) firms can encourage relation-specific investment and foster innovation by the upstream firms. We show that innovative activities by suppliers increase with the existence and strength of their social connections with customers. To establish causality, we exploit connection breaches due to manager/director retirements or deaths in the (much larger) customer firms and find that innovative activities drop for those suppliers connected to these customer members. Our work sheds light on how social connections can shape the boundary of the firm by mitigating contractual incompleteness and transactions costs, thereby allowing the upstream firms to remain as standalone entities instead of being vertically integrated with the downstream firms.
Date: Thursday 3rd March, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Dean Buckner (Bank of England)
Title: Time and value: traps and fallacies of asset pricing
Abstract:
We are familiar with the concept of 'statistical illusion', that is, the tendency for human beings to make statistically incorrect inferences from empirical data. Examples of these include the clustering illusion ('hot hand fallacy'), and the gambler's fallacy. This presentation discusses statistical illusion and cognitive bias in the financial markets, and how it can impact the decisions of buyers and sellers. Examples include technical analysis, correlation products, long-term discount rates, securitisation products and mortgage break clauses. To what extent are all market agents prone to cognitive bias? If so, what implication does such bias have for regulation and market ethics?
Date: Thursday 28th April, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Yacine Ait-Sahalia (Princeton University)
About Yacine Ait-Sahalia
Title: A Hausman Test for the Presence of Market Microstructure Noise in High Frequency Data
Abstract:
We develop tests that help assess whether a high frequency data sample can be treated as reasonably free of market microstructure noise at a given sampling frequency for the purpose of implementing high frequency volatility and other estimators. The tests are based on the Hausman principle of comparing two estimators, one that is efficient but not robust to the deviation being tested, and one that is robust but not as efficient. We investigate the asymptotic properties of the test statistic in a general nonparametric setting, and compare it with several alternatives that are also developed in the paper. Empirically, we find that improvements in stock market liquidity over the past decade have increased the frequency at which simple, uncorrected, volatility estimators can be safely employed.
Date: Thursday 12th May, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Anette Mikes (HEC Lausanne)
Title: Risk Management - the Revealing Hand
Abstract:
Many believe that the recent emphasis on enterprise risk management function is misguided, especially after the failure of sophisticated quantitative risk models during the global financial crisis. The concern is that top-down risk management will inhibit innovation and entrepreneurial activities. We disagree and argue that risk management should function as a Revealing Hand to identify, assess, and mitigate risks in a cost–efficient manner. Done well, the Revealing Hand of risk management adds value to firms by allowing them to take on innovative, therefore riskier projects and strategies. But risk management must overcome severe individual and organizational biases that prevent managers and employees from thinking deeply and analytically about their risk exposure. In this paper, we draw lessons from seven case studies about the multiple and contingent ways that a corporate risk function can foster highly interactive and intrusive dialogues to surface and prioritize risks, help to allocate resources to mitigate them, and bring clarity to the value trade-offs and moral dilemmas that lurk in those decisions.
Date: Thursday 26th May, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Jason Cen (Cambridge Judge Business School)
Title: Switching Risk Off: FX Correlations and Risk Premia
Abstract:
The recently popularized phrase "risk-off" refers to a change in risk preferences and the effect on asset prices of the associated portfolio rebalancing. We identify these episodes as a switch to a polarized correlation regime of currency returns. These risk-off transitions are relatively infrequent but noticeably increasing over time. They are persistent and associated with geopolitical events. Finally, risk-off switches are unrelated to changes in macroeconomic fundamentals and to volatility or average correlation shocks. Risk-off switches have very significant spill-over to the returns of broad asset classes and active trading strategies, with risky and safe asset returns being penalized and favored, respectively. We document that risk-off switches are associated with significant changes in the positions of professional investors across different financial markets, suggesting that the return evidence is consistent with price pressure induced by portfolio rebalancing.
Date: Thursday 9th June, 13:00 - 14:00
Event Location: Castle Teaching Room, Level 4, Cambridge Judge Business School.
Yuan Kathy (London School of Economics and Political Science)
Title: Multi-Asset Noisy Rational Expectations Equilibrium with Contingent Claims
Written in collaboration with Georgy Chabakauri and Konstantinos Zachariadis.
Abstract:
Her research focuses on developing new asset pricing theories with heterogeneous information and market frictions and testing their empirical implications. In the past few years, she has examined how crises spread through international financial markets and how introducing benchmark securities such as treasury bonds or stock indices improves the overall market liquidity. She is currently working on modeling systematic risk using network theory, studying higher order beliefs and strategic complementarities in the financial market, building dynamic and multi-asset REE models of asset prices with short-sale and borrowing constraints, constructing new metrics for performance evaluations, and developing new asset pricing tests based on revealed beliefs in investor portfolio holdings.
Date: Thursday 13th October, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Xin Chang Simba (Cambridge Judge Business School)
Title: The Real Effect of Financial Innovation: Evidence from Credit Default Swaps Trading and Corporate Innovation
Abstract:
We document that credit default swaps (CDS) trading on a firm’s debt positively influences its technological innovation measured using patents and patent citations. The positive effect is more pronounced for firms relying more on debt financing, borrowing from banks, borrowing from fewer bank lenders, having more restrictive debt covenants, or using more short-term debt prior to CDS introduction. Further analysis shows that firms’ innovation strategies become more risky and long-term oriented after the advent of CDS trading. These results suggest that CDS foster borrowing firms’ innovation via enhancing lenders’ risk tolerance and borrowers’ risk taking in the innovation process. Taken together, our findings reveal the real effects of financial innovation (i.e., CDS) on companies’ investment and technological progress.
Date: Thursday 27th October, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Peter Conti-Brown (University of Pennsylvania)
About Peter Conti-Brown
Title: Going Negative: The Legal, Institutional, and Political Case for Negative Interest Rates at the U.S. Federal Reserve
Written in collaboration with Miles Kimball (university of Colorado-Boulder).
Abstract:
For nearly a decade, global central banks have battled a “new normal” of low inflation and low growth. To combat these dynamics, some central banks—the Bank of Japan, the Swiss National Bank, and the European Central Bank, among others—have pursued a policy of dropping their target interest rates below the zero lower bound. Conspicuously absent from this group is the Federal Reserve, despite facing similar economic headwinds that suggest that negative interest rates could be more effective than other policies the Fed has pursued. In this paper, we provide the not merely the economic case for negative interest rates (although we summarize the evidence and theory) but discuss the main barriers that face the Fed in adopting this policy: law, politics, and institutions. We discuss the technical landscape that the Fed will encounter, and discuss the path the Fed can pursue well short of seeking legislative amendment to the Federal Reserve Act.
Date: Thursday 10th November, 13:00 - 14:00
Event Location: Lecture Theatre 3, Cambridge Judge Business School
David Lando (Copenhagen Business School)
About David Lando
Title: Safe-Haven CDS Premiums
Abstract:
We develop a model in which a derivatives-dealing bank faces capital charges from uncollateralized swap positions with sovereigns, and buys Credit Default Swap (CDS) contracts to obtain capital relief. CDS premiums depend on margin requirements for buyers and sellers of CDS contracts, the value of capital relief for the dealer banks, and the return on a risky asset. We explain the regulatory requirements that lead derivatives dealers to buy CDS and translate volumes of derivatives contracts outstanding between sovereigns and banks into CDS hedging demand. We argue that CDS premiums for safe sovereigns are primarily driven by regulatory requirements.
Date: Thursday 24th November, 13:00 - 14:00
Event Location: Castle Teaching Room, Cambridge Judge Business School