Professor Raman Uppal, EDHEC
Title: Investor Confidence and Portfolio Dynamics
Abstract:
To explain the empirically observed heterogeneity in household portfolio and wealth dynamics, we develop a general-equilibrium framework with multiple risky assets along with households that differ in their confidence about the return pro-cess for the risky assets. Consistent with recent empirical evidence, less-confident households overinvest in safe assets, hold underdiversified portfolios concentrated in familiar assets, are trend chasers, and earn lower absolute and risk-adjusted investment returns. More confident investors hold riskier positions and exhibit superior market-timing abilities. The model also explains why this investment behavior, despite Bayesian learning and optimal decision, persists for long periods, thereby exacerbating wealth inequality.
Date: Thursday 28th January, 13:00 - 14:00
Event Location: Online
John Matsusaka (USC Gould School of Law)
Title: A Theory of Proxy Advice when Investors Have Social Goals
Abstract:
This paper studies the conditions under which the proxy advice market helps and hinders corporate governance. A key assumption is that investors are heterogeneous, with some focusing only on returns while others also have nonpecuniary goals, such as environmental sustainability and protection of human rights. Proxy advisory firms compete for business by choosing a scale of production, price, and “slant” of advice. Heterogeneous demand creates pressure for the market to offer an array of advice, but there is a countervailing force: when demand is sufficiently large, suppliers adopt a “platform” technology and consolidate into a natural monopoly. Under conditions that seem empirically relevant, the platform monopolist slants its advice toward the preferences of investors with non-value-maximizing goals, thereby steering corporate elections away from value maximization. We characterize the conditions under which the proxy advice market succeeds and fails, discuss policy reforms that would help it succeed, and develop normative principles for assessing proxy advice when value maximization is not the sole objective of investors.
To download full paper, click here.
Date: Thursday 11th February, 13:00 - 14:00
Event Location: Online
Po-Hsuan (Paul) Hsu (University of Hong Kong)
(Click above for About)
Title: Injunction Risk, Technology Commercialization, and Profitability
Abstract:
Routinely granted injunctions during patent lawsuits have been regarded as a significant obstacle to firm innovation. We use the 2006 Supreme Court ruling in eBay v. MercExchange that reduced injunction likelihood in cases related to information and communications technology (ICT) patents to examine the effects of injunction risk on firms’ technology commercialization and market value. We find that firms with reduced injunction risk experience faster technology commercialization and higher profitability. Moreover, stock market investors react favorably to alleged infringing firms that are subject to reduced injunction risk, particularly when the litigation receives greater attention.
Date: Thursday 25th February, 13:00 - 14:00
Event Location: Online
Cameron Peng, Assistant Professor of Finance, LSE
Title: Factor demand and factor returns
Abstract:
A mutual fund’s demand for a pricing factor, measured by the loading of the fund’s returns on the factor’s returns, is persistent over time. When stock characteristics are time-varying and change frequently, persistence in factor demand generates a need for rebalancing. This rebalancing motive, in turn, leads to predictable trading from mutual funds and contributes to cross-sectional return predictability. In particular, when there is a “mismatch” between a stock’s characteristic and the underlying funds’ demand for that characteristic, the “mismatched” stock will face selling pressure from the underlying funds and subsequently earn lower returns. Double-sorting on stocks’ characteristics and mutual funds’ factor demand refines value and momentum strategies, generating abnormal returns that cannot be explained by subsequent fundamentals or retail trading flows.
Date:
Thursday 11th March, 13:00 - 14:00
Event Location: Online
Rob Engle (NYU Stern School of Business)
Title: Climate Risk and the Pandemic
Abstract: Abstract Unavailable
Date: Thursday 6th May, 17:00 - 18:00
Event Location: Online
Prof, Professor of Finance, PhD Professor of Finance, A&F Accounting & Finance
Title: Women in the Financial Sector
Abstract:
Using administrative micro data from the U.K., we examine the evolution and sources of the gender pay gap in finance. We show a persistently larger gender pay gap in finance over the last two decades, as compared to other sectors in the economy, even after controlling for firm and worker observable characteristics. Using workers who switch firms, we find that the gender pay gap in finance is predominantly explained by high-skill male workers sorting into finance relative to other sectors. Firm-specific pay premiums explain a smaller part of the gender pay gap in finance. We also show that the U.K. 2017 reform, that requires firms to publicly disclose the firm average gender pay gap, was successful into reducing the gender pay gap in the finance sector.
Date: Thursday 20th May, 13:00 - 14:00
Event Location: Online
Lorenzo Garlappi (Sauder)
Title: Group-Managed Real Options
Abstract:
We study a standard real-option problem where sequential decisions are made through voting by a group of members with heterogeneous beliefs. We show that, when facing both investment and abandonment timing decisions, the group behavior cannot be replicated by that of a representative ``median'' member. As a result, members' disagreement generates inertia---the group delays investment relative to a single-agent case---and underinvestment---the group rejects projects that are supported by a majority of members, acting in autarky. These coordination frictions hold in groups of any size, for general voting protocols, and are exacerbated by belief polarization.
To read the full paper click here
Date: Thursday 3rd June, 13:00 - 14:00
Event Location: Online
Lucas Mahieux (Tilburg School of Economics and Management)
Title: Asset Transfer Measurement Rules
Abstract:
We study the design of measurement rules when banks engage in loan transfers in secondary credit markets. Our model incorporates two standard frictions: 1) banks' monitoring incentives decrease in loan transfers, and 2) banks have private information about loan quality. Under only the monitoring friction, we find that the optimal measurement rule sets the same measurement precision regardless of bank characteristics, and strikes a balance between disciplining banks' monitoring efforts vs. facilitating efficient risk sharing. However, under both frictions, uniform measurement rules are no longer optimal but induce excessive retention, thus inhibiting efficient risk sharing. We show that the optimal measurement rule should be contingent on the amount of loan transfers. In particular, measurement decreases in the amount of loan transfers and no measurement should be allowed when banks have transferred most of their loans. We relate our results to current accounting standards for asset transfers.
To download the full paper click here
Date: Thursday 17th June, 13:00 - 14:00
Event Location: Online
Isabelle Roland (University of Cambridge, Economics)
Title: The Aggregate Consequences of Forbearance Lending: Evidence from Japan
Abstract:
We study the impact of forbearance on aggregate economic performance in Japan over the period 2007-2017. Forbearance is a practice whereby banks accommodate bad borrowers instead of terminating their loans, with negative consequences for aggregate productivity. The Japanese policy response to the global financial crisis of 2007-2008 (SME Financing Facilitation Act) has revived this practice. Our novel theory-driven empirical approach enables us to perform a quantitative assessment of the aggregate impact of forbearance, including its positive effects, namely the avoidance of a large number of bankruptcies and increased unemployment. We develop a search-theoretic model of credit markets with severance costs that capture forbearance frictions and estimate those frictions using the Tokyo Shoko Research (TSR) dataset. Our estimates indicate a marked increase in forbearance frictions from 2010 onwards, suggesting that the SME Financing Facilitation Act of 2009 has revived the practice of forbearance in Japan. Our counterfactual exercises indicate that, in the absence of forbearance, the capital productivity of survivors would on average be 4.22% higher. On average, there would be 6.89% fewer jobs and 3.93% fewer firms. Finally, we provide regression-based evidence in support of our channel. First, we relate our estimates of forbearance frictions to the zombieness measure of Caballero, Hoshi and Kashyap (2008), and show that higher frictions are associated with a higher probability that a firm is classified as a zombie firm. Second, we exploit geographical variation in search frictions across Japanese prefectures to show that forbearance frictions are more significant when search frictions are more stringent. This shows that our model captures a unique margin in the data, which is not explained by models that are not based on search and matching.
Date: Thursday 14th October, 13:00 - 14:00
Event Location: Online
Dr, Cynthia Balloch (LSE)
Title: Asset Allocation and Returns in the Portfolios of the Wealthy
Abstract:
Despite accounting for a large amount of total wealth, there is little direct empirical evidence of the investment behavior of wealthy households. Based on a proprietary database of investment portfolios and returns, we document three new facts about ultra-high net worth portfolios. First, asset allocations change strongly with total wealth, as super-wealthy households hold a much larger share of alternative investments, such as private equity and hedge funds, and a lower share of liquid assets, such as public equities. The data includes a significant number of portfolios large enough to explore allocations and returns within the top percentile of the wealth distribution, including the top 0.01 percent. Second, while realized returns are increasing with wealth, Sharpe ratios are broadly similar across the top of the wealth distribution. This suggests that investment skill does not differ among investors in upper portions of the wealth distribution, but that risk tolerance increases with total wealth. Third, we use the data to explore whether returns differ within narrow asset classes, and find that returns on alternative assets in particular are increasing in wealth. This indicates that access and manager selection play a large part in determining returns and raises questions about the benefits of broadening access to delegated investing in private assets. Taken together, these findings substantially improve on existing empirical evidence on return heterogeneity in the U.S., which is increasingly understood to be critical in both macroeconomic dynamics and asset pricing.
Date: Thursday 28th October, 13:00 - 14:00
Event Location: Online
Sebastian Ebert (Frankfurt School of Finance & Management)
Title: Pi-CAPM: The Classical CAPM with Probability Weighting and Skewed Assets by the above, Joost Driessen and Skewed Assets
Abstract:
We study asset prices in a generalized mean-variance framework that allows for probability weighting (the idea that investors overweight rare, high impact events). The resulting model – the Pi-CAPM – allows for a unique and homogeneous pricing equilibrium with skewed and correlated assets and a tractable analysis thereof. We find that even symmetric probability weighting has asymmetric pricing implications. For example, the price impact of volatility is skewness-dependent, negative for left-skewed assets but potentially positive for right-skewed assets. We further find that probability weighting translates into an exaggerated dependence between the assets. Finally, we make an empirical contribution and show that the option-implied premiums on variance and skewness depend on the underlying asset's skewness, in the very way that is predicted by the Pi-CAPM.
Date: Thursday 11th November, 13:00 - 14:00
Event Location: Online
Martin Szydlowski (Carlson School of Management)
Title: Harnessing the Overconfidence of the Crowd: A Theory if SPACs
Abstract:
We provide a theory of Special Purpose Acquisition Companies, or SPACs. A sponsor raises financing for a new opportunity from a group of investors with differing ability to process information. We show that when all investors are rational, the sponsor prefers to issue straight equity. However, when sufficiently many investors are overconfident about their ability to process information, the sponsor prefers to issue units with redeemable shares and rights. The model matches many empirical features, including the difference in returns for short-term and long-term investors and the overall underperformance of SPACs. We also evaluate the impact of policy interventions, such as greater mandatory disclosure and transparency, limiting investor access, and restricting the rights offered.
Date: Thursday 25th November, 13:00 - 14:00
Event Location: Online