Paris December 2018

Jeudi, 20 décembre, 2018 - 08:00
Novotel Paris les Halles Hotel, Paris



The 16th Paris December Finance Meeting is organized in downtown Paris on December 20, 2018 by EUROFIDAI (European Financial Data Institute) and ESSEC Business School with the participation of AFFI (French Finance Association).

In 2018, the meeting is jointly sponsored by CERESSEC / CDC Institute for Economic Research / CNRS / Institut Louis Bachelier / Fondation Banque de France in Money, Finance and Banking / Equipex BEDOFIH project (European high frequency financial database) / Amundi / Ardian / "Regulation and Systemic Risk" ACPR Chair.

All researchers in finance are invited to present in English their latest research in all areas of finance and insurance, with a special attention given to papers including empirical analysis.

A special prize for the Best Paper of the Meeting will be awarded.

In 2018, 350 papers were submitted for presentation at the meeting and only one out of 5 papers was accepted, indicating rigorous selection criteria

The Paris December Finance Meeting is one of the top 2 European conferences in terms of the quality of the papers presented.

An international reach

In 2017, the submissions were received from :

the U.S. (83), France (43), Germany (35), the U.K. (24), Switzerland (18), Austria (17), Canada (10), Italy (8), Portugal (7), Spain (6), China (5), Sweden (5), Taiwan (5), Belgium (4), Finland (4), South Korea (4), the Netherlands (4), Norway (4), Singapore (4), Denmark (2), Chile (1), Cyprus (1), Greece (1), India (1), Ireland (1), Israel (1), Jamaica (1), Japan (1), Kuwait (1), Lebanon (1). 








2018 Scientific Committee

  • Co-President : Patrice Fontaine (EUROFIDAI, CNRS)
  • Co-President : Jocelyn Martel (ESSEC Business School)
  • Members :

Yacine Ait-Sahalia

Hervé Alexandre

Nihat Atkas

Patrick Augustin

Anne Balter

Laurent Bach

Jean-Noël Barrot

Philippe Bertrand

Bruno Biais

Romain Boulland

Marie Brière

Marie-Hélène Broihanne

Laurent Calvet

Luciano Campi

Catherine Casamatta

Georgy Chabakauri

Pierre Collin-Dufresne

Julien Cujean

Ian Cooper

Ettore Croci

Matt Darst

Eric de Bodt

François Degeorge

Olivier Dessaint

Alberta Di Giuli

Christian Dorion

Mathias Efing

Ruediger Fahlenbrach

Patrice Fontaine

Thierry Foucault

Pascal François

Andras Fulop

Roland Füess

Jean-François Gajewski

Edith Ginglinger

Peter Gruber

Alex Guembel

Georges Hübner

Julien Hugonnier

Heiko Jacobs

Sonia Jimenez

Maria Kasch

Alexandros Kostakis

Olivier Lecourtois

Jongsub Lee

Laurence Lescourret

Abraham Lioui

Elisa Luciano

Yannick Malevergne

Roberto Marfé

Jocelyn Martel

Maxime Merli

Sophie Moinas

Franck Moraux

Lorenzo Naranjo

Lars Norden

Clemens Otto

Fabricio Perez

Christophe Pérignon

Joël Petey

Alberto Plazzi

Patrice Poncet

Sébastien Pouget

Jean-Luc Prigent

Jean-Paul Renne

Patrick Roger

Jeroen Rombouts

Mathieu Rosenbaum

Julien Sauvagnat

Patrick Sentis

Olivier Scaillet

Paolo Sodini

Ariane Szafarz

Christophe Spaenjers

Roméo Tédongap

Michael Troege

Boris Vallée

Philip Valta

Guillaume Vuillemey

Ryan Williams

Rafal Wojakowski

Alminas Zaldokas

Princeton University & NBER

Université Paris Dauphine

WHU Otto Beisheim School of Management 

McGill University

Tilburg University

ESSEC Business School

MIT Sloan School of Management

Université Aix-Marseille

Toulouse School of Economics

ESSEC Business School

Amundi, Université Paris Dauphine, Université Libre de Bruxelles

Université de Strasbourg


London Schoool of Economics

TSE & IEA, Université de Toulouse 1 Capitole

London School of Economics


Institute for Financial Management, University of Bern

London Business School

Universita Cattolica del Sacro Cuore

Board of Governors of the Federal Reserve 

Université de Lille 2

University of Lugano

University of Toronto

ESCP Europe

HEC Montréal

University of Geneva & SFI



HEC Paris

HEC Montréal

ESSEC Business School

University of Saint Gallen

IAE Lyon

Université Paris-Dauphine

Universita della Svizzeria Italiana

Toulouse School of Economics

HEC Liège


University of Mannheim

Grenoble INP

Humboldt University of Berlin

University of Manchester

EM Lyon

University of Florida

ESSEC Business School


Collegio Carlo Alberto

Université de Paris 1 Panthéon-Assas

Collegio Carlo Alberto

ESSEC Business School

Université de Strasbourg

Toulouse School of Economics

Université de Rennes 1

University of Miami


HEC Paris

Wilfrid Laurier University

HEC Paris

Université de Strasbourg

University of Lugano & SFI

ESSEC Business School

Toulouse School of Economics

Université de Cergy-Pontoise

HEC Lausanne

Université de Strasbourg

ESSEC Business School

Université Paris 6

Bocconi University

Université de Montpellier

University of Geneva & SFI

Stockholm School of Economics

Université Libre de Bruxelles

HEC Paris

ESSEC Business School

ESCP Europe

Harvard Business School

University of Geneva 

HEC Paris

University of Arizona

Surrey Business School




Call for papers

The 16th Paris December Finance Meeting is organized in downtown Paris on December 20, 2018 by EUROFIDAI (European Financial Data Institute) and ESSEC Business School with the participation of AFFI (French Finance Association).

It is jointly sponsored by CERESSEC / CDC Institute for Economic Research / CNRS / Institut Louis Bachelier / Fondation Banque de France in Money, Finance and Banking / Equipex BEDOFIH project (European high frequency financial database) / Amundi / Ardian / Natixis / Société Générale / "Regulation and Systemic Risk" ACPR Chair.

All researchers in finance are invited to present in English their latest research in all areas of finance and insurance. All job market and PhD papers are welcome.

In previous years, approximately one in six submitted papers was accepted. The Paris December Finance Meeting is one of the top 2 European conferences in terms of the quality of the papers presented.

Prizes will be awarded for the best conference papers and for the best papers using BEDOFIH and EUROFIDAI data.


Only online submissions will be considered for the 2018 Paris December Finance Meeting. Before filling the application form, please read the following instructions:

  • Prepare 2 files in pdf format:
    • An anonymous version of the paper (the complete paper without the name(s) of the author(s), without the acknowledgements and without any indication of author’s affiliation)
    • A complete version of the paper including the following information: title, name(s) of the author(s), abstract, keywords, email address for each author, complete address(es)
  • The abstract you will fill in the submission form is limited to 150 words.
  • To complete your submission you will have to classify your paper using 3 keywords among the following : Asset Pricing, Banking Regulation and Systemic Risk, Banking/Financial Intermediation, Bankruptcy, Behavioral Finance, Capital Structure, Corporate Governance, Derivatives, Ethical Finance, Financial Crisis, Financial Econometrics, Financial Mathematics, Financial Risks, Hedge Funds/Mutual Funds, Historical Finance, Insurance, Interest Rates, International Finance, Investment Policy/Capital Budgeting, Market Microstructure/Liquidity, Merger and Acquisition, Ownership, Payout Policy, Portfolio Management, Private Equity/Venture Capital, Product Market Relationships, Real Estate, Risk Management, Security Issuance/IPO. This choice will define the session referees judging your paper.
  • Each submission will be charged 45€.

Click on the "Submission" tab to access online submissions.


Papers must be submitted online by June 4, 2018.


Accepted papers will be posted on the Financial Economic Network (SSRN) and the website of the conference.




Only online submissions on SSRN will be considered for the 2018 Paris December Finance Meeting. Before filling the application form, please read the following instructions:

  • Prepare 2 files in pdf format:
    • An anonymous version of the paper (the complete paper without the name(s) of the author(s), without the acknowledgements and without any indication of author’s affiliation)
    • A complete version of the paper including the following information: title, name(s) of the author(s), abstract, keywords, email address for each author, complete address(es)
  • The abstract you will fill in the submission form is limited to 150 words.
  • To complete your submission you will have to classify your paper using 3 keywords among the following: Asset Pricing, Banking Regulation and Systemic Risk, Banking/Financial Intermediation, Bankruptcy, Behavioral Finance, Capital Structure, Corporate Governance, Derivatives, Entrepreneurial Finance, Ethical Finance, Financial Analyst, Financial Crisis, Financial Econometrics, Financial Mathematics, Financial Risks, Hedge Funds/Mutual Funds, Historical Finance, Insurance, Interest Rates, International Finance, Investment Policy/Capital Budgeting, Market Microstructure/Liquidity, Merger and Acquisition, Ownership, Payout Policy, Portfolio Management, Private Equity/Venture Capital, Product Market Relationships, Real Estate, Risk Management, Security Issuance/IPO. This choice will define the session referees judging your paper.
  • Each submission will be charged 45€.


(you will be redirected to the SSRN website)



Papers must be submitted online by June 4, 2018.


Accepted papers will be posted on the Financial Economic Network (SSRN) and the website of EUROFIDAI.




Show all sessions
Planning from December 20, Thursday

Welcome and registration (12/20/2018 at 08:00)

Capital Structure (12/20/2018 at 09:00)

Managerial Compensation Incentives and Corporate Debt Maturity: Evidence from FAS 123R

Authors : Hong Jieying (ESSEC Business School)

Intervenant: Jieying HONG (ESSEC Business School)

This paper studies the effect of risk-taking incentives provided in managerial compensation on corporate debt maturity choices. The Financial Accounting Standard (FAS) 123R is used as a quasi-natural experiment to establish causality. FAS 123R requires firms to expense stock options at fair value, which has resulted in a dramatic reduction in both option compensation and managerial risk-taking incentives. We find that treated firms significantly increased debt maturity relative to control firms. Further tests identify that the alleviation of creditor-shareholder agency conflicts due to the adoption of FAS 123R is the underlying mechanism driving the result.

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Debt as Threat: Evidence from Union-Sponsored Shareholder Proposals

Authors : Di Giuli Alberta (ESCP Europe - Department of Finance); Petit-Romec Arthur (Skema Business School);

Intervenant: Arthur PETIT-ROMEC (Skema Business School)

This paper uses data on shareholder proposals to study how leverage affects the interaction between firms and labor unions. We find a negative association between financial leverage and shareholder proposals sponsored by unions. Our results are consistent with the idea that capital structure affects labor unions' behavior and suggest that debt deters labor unions from engaging in negotiation tactics. Additional tests indicate that the negative association between debt and union proposals is driven by governance proposals, in particular proposals on executive compensation and board elections, and more pronounced in firms in poorer financial condition.

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The Impact of Renegotiable Debt on Firms

Authors : Arnold Marc (University of Saint Gallen - School of Finance); Westermann Ramona (Copenhagen Business School);

Intervenant: Marc ARNOLD (University of Saint Gallen - School of Finance)

This paper develops a model to investigate the impact of renegotiable debt on firms. The novel feature is that firms can renegotiate debt both in distress and outside distress, which allows us to rationalize empirical timing patterns of debt renegotiations. We show that this feature is crucial to explain the cross-section of observed credit spreads and the joint distribution of corporate events and the debt control premium. These debt pricing patterns are not captured by existing models. Incorporating both renegotiation events also generates novel testable implications for the impact of renegotiable debt on corporate policies.

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Financial Econometrics / Mathematical Finance (12/20/2018 at 09:00)

The Cross-Sectional Distribution of Fund Skill Measures

Authors : Barras Laurent (McGill University - Desautels Faculty of Management); Gagliardini Patrick (University of Lugano); Scaillet O. (University of Geneva GSEM and GFRI);

Intervenant: Laurent BARRAS (McGill University - Desautels Faculty of Management)

We develop a novel non-parametric approach to estimate the entire distribution of skill across mutual funds. Our approach is simple, fast, and immune to misspecification errors that plague traditional parametric approaches. As such, it provides a unified and consistent framework for jointly studying the two dimensions of skill, namely the ability to: (i) detect profitable trades; (ii) mitigate capacity constraints. Our empirical analysis reveals that while 88.6% of the managers can detect profitable trades, 86.1% are also subject to capacity constraints. The two skill dimensions exhibit strong heterogeneity both within and across fund groups. Importantly, they are also negatively correlated. Combining them into a single skill measure - the value added -, we find that 70% of the funds create a positive value equal to $9 mio. per year on average.

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A Self-Exciting Model for Mutual Fund Flows: Investor Behaviour and Liability Risk

Authors : Darolles Serge (Paris Dauphine University - DRM-CEREG); Le Fol Gaëlle (Université Paris-Dauphine); Lu Yang (University of Paris 13); Sun Theo Ran (Université Paris-Dauphine, PSL Research University);

Intervenant: Gaëlle LE FOL (Université Paris-Dauphine)

This paper analyses the purchase and redemption behaviour of mutual fund investors and its implications on fund liquidity risk. We collect a novel set of proprietary data which contains a large number of French investors holding funds with various degrees of asset liquidity. We build a Self-Exciting Poisson model capturing fund flows' clustering effects and over-dispersion. The model improves the forecast accuracy of future flows and provides a reliable risk indicator (Flow Value at Risk.) Accordingly, we introduce the notion of liability risk where investor's behaviour increases mutual fund liquidity risk. We further decompose fund flows into investor categories. We find that investors exhibit high heterogeneous behaviour, and a lead-lag relation exists between them. Finally, we control flow dynamics for various economic conditions. We show that although flows evolve with economic conditions, investor's behaviour stays the main significant determinant of flows' randomness. Our findings encourage fund manager to adopt an ALM approach.

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Short Selling and Excess Return Correlation

Authors : Geraci Marco Valerio (University of Cambridge - Cambridge-INET Institute); Gnabo Jean-Yves (Facultés Universitaires Notre-Dame de la Paix (FUNDP)); Veredas David (Vlerick Business School);

Intervenant: Marco Valerio GERACI (University of Cambridge - Cambridge-INET Institute)

We show that the number of common short sellers shorting two stocks can predict their four-factor excess return correlation one month ahead, controlling for many pair characteristics, including similarities in size, book-to-market, and momentum. We verify that this result holds out-of-sample and show that it can be used to establish a trading strategy that yields positive cumulative returns over 12 months. We explore the possible mechanisms that could give rise to this relationship. We find that neither the price-impact mechanism nor the liquidity-provision mechanism can explain the uncovered relationship. Rather, it seems that the relationship is due to informed short selling, which we identify using several indicators of value obtained from financial statement analyses.

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Behavioral Finance 1 (12/20/2018 at 09:00)

The Impact of Recency Effects on Stock Market Prices

Authors : Mohrschladt Hannes (University of Muenster - Finance Center)

Intervenant: Hannes MOHRSCHLADT (University of Muenster - Finance Center)

Experimental evidence shows that recent observations have a stronger impact on the formation of beliefs than observations from the more distant past. Thus, if investors judge upon a stock's attractiveness based on historical return data, they presumably overweight the most recent returns. Based on this simple idea, we propose a new empirical measure of recency adjustment that reflects the ordering of previous returns. Based on the conjectured behavioral mechanisms, recency adjustment should be systematically related to stock mispricing. We use US stock market data from 1926 to 2016 to support this hypothesis empirically and show that recency adjustment is a strong predictor for the cross-section of subsequent returns.

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Friends at WSJ: Journalist Connection, News Tone, and Stock Returns

Authors : Xu Guosong (WHU - Otto Beisheim School of Management)

Intervenant: Guosong XU (WHU - Otto Beisheim School of Management)

This paper studies the effect of the firm-journalist network on news tone and stock returns. Using a proprietary dataset on the firm's and the CEO's connections to the Wall Street Journal (WSJ) reporters, I find that such connections lead to markedly more favorable coverage of corporate M&A news and to better associated market re-actions. The effect on the financial market is larger for the deals featured on the front page of the Journal. Evidence suggests that the relationship is causal: First, using the reporters' turnover as an instrument for the connected coverage, I observe that the news slant and market effects remain significant. Additionally, using Rupert Murdoch's acquisition of the WSJ as an exogenous shock to journalistic independence, I find that firms previously connected to Mr. Murdoch received better coverage and more positive stock returns after the ownership change.

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Efficient Bubbles?

Authors : Haddad Valentin (University of California, Los Angeles (UCLA) - Anderson School of Management); Ho Paul (Princeton University - Department of Economics); Loualiche Erik (University of Minnesota, Finance);

Intervenant: Erik LOUALICHE (University of Minnesota, Finance)

Episodes of booming firm creation often coincide with intense speculation on financial markets. Disagreement among investors transforms the economics of optimal firm creation. We characterize the interaction between speculation and classic entry externalities from growth theory through a general entry tax formula for a non-paternalistic planner. The business-stealing effect is mitigated when investors believe they can identify the best firms. Speculation thus increases firm entry but reduces the optimal tax, potentially resulting in under-entry. The appropriability effect also vanishes, leaving only general equilibrium effects on input prices, aggregate demand, or knowledge. As a result, speculation reverses the role of many industry characteristics for efficiency. For instance, as the labor share increases, the optimal tax decreases under agreement but increases under disagreement. Further, economies with identical aggregate properties but a different market structure have the same efficiency with agreement, but call for different policies once financial market speculation is taken into account.

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Asset Pricing 1 (12/20/2018 at 09:00)

Oil and Equity Return Predictability: The Importance of Dissecting Oil Price Changes

Authors : Jiang Haibo (Tulane University); Skoulakis Georgios (University of British Columbia (UBC)) - Division of Finance); Xue Jinming (University of Maryland - Department of Finance);

Intervenant: Georgios SKOULAKIS (University of British Columbia (UBC))

Based on data until the mid 2000s, oil price changes were shown to predict international equity index returns with a negative predictive slope. Extending the sample to 2015, we document that this relationship has been reversed over the last ten years and therefore has not been stable over time. We then posit that oil price changes are still useful for forecasting equity returns once complemented with relevant information about oil supply and global economic activity. Using a structural VAR approach, we decompose oil price changes into oil supply shocks, global demand shocks, and oil-specific demand shocks. The hypothesis that oil supply shocks and oil-specific demand shocks (global demand shocks) predict equity returns with a negative (positive) slope is supported by the empirical evidence over the 1986-2015 period. The results are statistically and economically significant and do not appear to be consistent with time-varying risk premia.

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Beta Risk in the Cross-Section of Equities

Authors : Boloorforoosh Ali (Concordia University); Christoffersen Peter (University of Toronto - Rotman School of Management); Gourieroux Christian (University of Toronto - Department of Economics); Fournier Mathieu (HEC Montreal);

Intervenant: Mathieu FOURNIER (HEC Montreal)

We develop a continuous-time intertemporal CAPM model that allows for risky beta exposure, which we explicitly specify. In the model, the expected return on a stock depends on beta's co-movement with market variance and more generally with the stochastic discount factor and deviates from the standard security market line when beta risk is priced. When estimating the model on returns and options we find that allowing for beta risk helps explain the expected returns on the low and high beta stocks, which are challenging for standard factor models.

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Bitcoin: Learning, Predictability and Profitability via Technical Analysis

Authors : Detzel Andrew L. (University of Denver - Daniels College of Business); Liu Hong (Washington University in St. Louis - Olin Business School); Strauss Jack (University of Denver - Reiman School of Finance); Zhou Guofu (Washington University in St. Louis - John M. Olin Business School);

Intervenant: Jack STRAUSS (University of Denver - Reiman School of Finance)

We document that Bitcoin returns, while unpredictable by macroeconomic variables, are predictable by 1- to 20-week moving averages (MAs) of daily prices, both in- and out-of-sample. Trading strategies based on MAs generate substantial alpha, utility and Sharpe ratios gains, and signi cantly reduce the severity of drawdowns relative to a buyand-
hold position in Bitcoin, which already has a Sharpe ratio of 1.8. We explain these facts with a novel equilibrium model that demonstrates, with uncertainty about growth in fundamentals, rational learning by investors with different priors yields predictability of returns by MAs.

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Market Microstructure 1 (BEDOFIH) (12/20/2018 at 09:00)

Presiding : Patrice FONTAINE (Eurofidai)

Dynamic Adverse Selection and Liquidity

Authors : Rosu Ioanid (HEC Paris (Groupe HEC) - Finance Department)

Intervenant: Ioanid ROSU (HEC Paris (Groupe HEC) - Finance Department)

Does a larger fraction of informed trading generate more illiquidity, as measured by the bid-ask spread? We answer this question in the negative in the context of a dynamic dealer market where the fundamental value follows a random walk, provided we consider the long run (stationary) equilibrium. More informed traders tend to generate more adverse selection and hence larger spreads, but at the same time cause faster learning by the market makers and hence smaller spreads. These two effects offset each other in the long run.

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Is Liquidity Risk Priced in Partially Segmented Markets?

Authors : Chaieb Ines (University of Geneva and Swiss Finance Institute); Errunza Vihang R. (McGill University - Desautels Faculty of Management); Langlois Hugues (HEC Paris (Groupe HEC) - Finance Department);

Intervenant: Ines CHAIEB (University of Geneva and Swiss Finance Institute)

We develop an asset pricing model to analyze the joint impact of liquidity costs and market segmentation. The freely traded securities command a premium for liquidity level and global market and liquidity risk premiums whereas securities that can only be held by a subset of investors additionally command a local market and liquidity risk premiums. Based on a new methodology, we find that the liquidity level premium dominates the liquidity risk premiums for our sample of 24 emerging markets. Whereas the local liquidity risk premium is empirically small, the global market liquidity risk premium dramatically increases during crises and market corrections.

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The Impacts of Fragmentation on the Price Discovery Dynamics: Contributions of Multilateral Trading Facilities and Regulated Market

Authors : Gillet Roland L. (Université Paris I Panthéon-Sorbonne); Ligot Stéphanie (Université Paris I Panthéon-Sorbonne (PRISM Sorbonne and Labex RéFi));

Intervenant: Stéphanie LIGOT (Université Paris I Panthéon-Sorbonne (PRISM Sorbonne and Labex RéFi))

This paper studies the price discovery dynamics of cross-listed CAC40 stocks. Based on the Hasbrouck's (1995) methodology, we have used high-frequency order flow on individual stocks to study the monthly contribution of the Regulated Market (Euronext Paris) and Multilateral Trading Facilities (MTFs), such as BATS and Chi-X, to the price discovery. We study the impacts of spatial fragmentation on the price discovery process by using the quote midpoint on the best limits per second. Multilateral trading facilities (MTFs) contribute significantly to the price discovery. Nevertheless, Hautcoeur et al. (2010) have underlined that the Regulated Market (RM) has a role of centralising, consolidating and publishing pre- and post-trade information, which is considered a public good. An appropriate degree of transparency needs to exist in the markets in order to make the consolidation of transactions and the fragmentation of markets and players compatible. The latter encourages competition and market efficiency.

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COFFEE BREAK (12/20/2018 at 10:30)

Corporate Governance 1 (12/20/2018 at 11:00)

Is the Chinese Corporate Anti-Corruption Campaign Authentic?

Authors : Griffin John M. (University of Texas at Austin - Department of Finance); Liu Clark (Tsinghua University - PBC School of Finance); Shu Tao (University of Georgia - Department of Finance);

Intervenant: Tao SHU (University of Georgia - Department of Finance)

This paper examines whether the massive Chinese anti-corruption campaign is ensnaring corrupt firms, contains a political component, and is reducing corporate corruption. Consistent with the campaign's stated objectives, Chinese firms with characteristics commonly associated with measures of poor governance, self-dealing, and inefficiencies are more likely to have investigated executives. However, affiliations with prominent investigated leaders increase investigation likelihood and executives with connections to top current central leadership is less likely to be investigated, possibly indicating political favoritism. Over time, there has been a sizeable decline in entertainment expenditures but little overall signs of decreases in measures of potential corporate corruption.

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Litigating Innovation: Evidence from Securities Class Action Lawsuits

Authors : Kempf Elisabeth (University of Chicago - Booth School of Business); Spalt Oliver G. (Tilburg University - Department of Finance);

Intervenant: Elisabeth KEMPF (University of Chicago - Booth School of Business)

Low-quality securities class action lawsuits disproportionally target fi rms with valuable innovation. We establish this fact using data on lawsuits against U.S. corporations between 1996 and 2011 and the private economic value of a firm's newly granted patents as a measure of valuable innovation. We find that securities class actions impose a substantial implicit "tax" on highly innovative fi rms. Regarding the channel, our findings suggest that changes in investment opportunities and corporate disclosure induced by the innovation make successful innovators attractive targets of low-quality litigation. Overall, our results provide new evidence consistent with the view that the current class action litigation system has adverse effects on the competitiveness of the U.S. economy.

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Employment Protection and Share Repurchases: Evidence from Wrongful Discharge Laws

Authors : Dang Viet Anh (Alliance Manchester Business School); De Cesari Amedeo (University of Manchester - Alliance Manchester Business School - Finance & Accounting Group); Phan Hieu V. (University of Massachusetts Lowell);

Intervenant: Amedeo DE CESARI (University of Manchester - Alliance Manchester Business School - Finance & Accounting Group)

We use the staggered adoption of Wrongful Discharge Laws (WDLs) by different U.S. state courts as a quasi-natural experiment to examine the causal relation between employee firing costs and corporate payout policy. We find that greater employment protection and higher firing costs imposed by WDLs lead to higher stock repurchases. Further analysis indicates that since higher firing costs exacerbate the conflict of interests between shareholders and workers and potentially lead to rent extraction by the latter, firms increase share buybacks to reduce the risk of wealth transfer from shareholders to workers.

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Banking / Systematic Risk (ACPR Chair) (12/20/2018 at 11:00)

Presiding : Christophe PERIGNON (HEC Paris)

Empirically Evaluating Systemic Risks in CCPs: The Case of Two CDS CCPs

Authors : Campbell Sean D. (U.S. Division of Monetary Affairs); Ivanov Ivan (Board of Governors of the Federal Reserve System)

Intervenant: Ivan IVANOV (Board of Governors of the Federal Reserve System)

We empirically evaluate the systemic stability of two large CDS CCPs. We show that positive correlations between the exposures of large dealers could lead to substantially larger combined stress losses to a CCP than if we consider dealers in isolation. These results highlight crowded trade concerns. We then study the risk faced by a set of CCPs from the clearing activities of their common dealers. We that the high positive correlations in exposures of dealers across CCPs can lead to dealers experiencing large losses to both CCP simultaneously. Our study illustrates the potential for contagion of stress through CCPs.

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Adapting Lending Policies When Negative Interest Rates Hit Banks' Profits

Authors : Arce Oscar (Banco de Espagna); Garcia-Posada Miguel (Banco de Espagna); Mayordomo Sergio (Banco de Espagna); Ongena Steven (University of Zurich - Department of Banking and Finance)

Intervenant: Miguel GARCIA-POSADA (Banco de Espagna)

What is the impact of negative interest rates on bank lending and risk-taking? To answer this question we study the changes in lending policies using the Euro area Bank Lending Survey and the Spanish Credit Register. Banks whose net interest income is adversely affected by negative rates are concurrently lowly capitalized, take less risk and adjust loan terms and conditions to shore up their risk weighted assets and capitalization. These banks also increase non-interest charges more. Importantly, we find no differences in banks' credit supply and credit standard setting, neither in Euro area nor in Spain, suggesting that negative rates do not necessarily contract the supply of credit, which can be interpreted in the sense that the so-called "reversal rate" has not been reached yet.

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Contagious Bank Runs and Dealer of Last Resort

Authors : Li Zhao (University of International Business and Economics (UIBE) - School of Banking and Finance); Ma Kebin (University of Warwick - Finance Group)

Intervenant: Kebin MA (University of Warwick - Finance Group)

In a global-games framework, we show how a dealer-of-last-resort policy can promote financial stability while traditional lender-of-last-resort policies are informationally constrained: Central banks and private investors can be uncertain whether banks selling assets to fend off runs are insolvent or illiquid. Such uncertainty leads to asset price collapses and runs and restricts central banks' role as a lender of last resort. In the presence of aggregate uncertainty, contagion and price volatility emerge as a multiple-equilibria phenomenon despite the global-games refinement. A dealer-of-last-resort policy that requires no information on individual banks' solvency can contain contagion and stabilize prices at zero-expected costs.

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Asset Pricing 2 (12/20/2018 at 11:00)

Variance Premium, Downside Risk, and Expected Stock Returns

Authors : Feunou Bruno (Bank of Canada); Lopez Aliouchkin Ricardo (Syracuse University); Tédongap Roméo (ESSEC Business School); Xu Lai (Syracuse University);

Intervenant: Ricardo LOPEZ ALIOUCHKIN (Syracuse University)

We decompose total variance into its bad and good components and measure the premia associated with their fluctuations using stock and option data from a large cross-section of firms. The total variance risk premium (VRP) represents the premium paid to insure against fluctuations in bad variance (called bad VRP), net of the premium received to compensate for fluctuations in good variance (called good VRP). Bad VRP provides a direct assessment of the degree to which asset downside risk may become extreme, while good VRP proxies for the degree to which asset upside potential may shrink. We find that bad VRP is important economically; in the cross-section, a one-standard-deviation increase is associated with an increase of up to 13% in annualized expected excess returns. Simultaneously going long on stocks with high bad VRP and short on stocks with low bad VRP yields an annualized risk-adjusted expected excess return of 18%.

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Idiosyncratic Volatility, Its Expected Variation, and the Cross-Section of Stock Returns

Authors : Branger Nicole (University of Muenster - Finance Center Muenster); Hülsbusch Hendrik (University of Muenster - Finance Center Muenster); Middelhoff T. Frederik (University of Muenster - Finance Center Muenster);

Intervenant: T. Frederik MIDDELHOFF (University of Muenster - Finance Center Muenster)

We offer a novel perspective on the negative relation between idiosyncratic volatility (IVOL) and expected returns. We show that the IVOL puzzle is largely driven by a mean-reversion behavior of the stocks' volatilities, which is not captured by a simple historic measure of IVOL. In doing so, we make use of option implied information to extract the expected mean-reversion speed of IVOL in an almost model-free fashion. Together with the current level of IVOL this method allows us to identify stocks' expected IVOL changes in a very general setting. Under the assumption of IVOL carrying a positive price of risk (Merton (1987)) we offer a explanation for the puzzle. In a horse race we show that the mean-reversion speed is superior to the most prominent competing explanations. All our findings are robust to different measures of IVOL and various stock characteristics.

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Measuring Skewness Premia

Authors : Langlois Hugues (HEC Paris (Groupe HEC) - Finance Department)

We provide a new methodology to empirically investigate the respective roles of systematic and idiosyncratic skewness in explaining expected stock returns. Forming a risk factor that captures systematic skewness risk and forming idiosyncratic skewness sorted portfolios only require the ordering of stocks with respect to each skewness measure. Accordingly, we use a large number of predictors to forecast the cross-sectional ranks of systematic and idiosyncratic skewness which are considerably easier to predict than their actual values. Compared to other measures of ex ante systematic skewness, our forecasts create a significant spread in ex post systematic skewness. A predicted systematic skewness risk factor carries a significant risk premium that ranges from 7% to 12% per year and is robust to the inclusion of downside beta, size, value, momentum, profitability, and investment factors. In contrast to systematic skewness, the role of idiosyncratic skewness in pricing stocks is less robust. Finally, we document how the determinants of systematic skewness differ from those of idiosyncratic skewness.

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Banking / Financial Intermediation 1 (12/20/2018 at 11:00)

Intergenerational Risk Sharing in Life Insurance: Evidence from France

Authors : Hombert Johan (HEC Paris (Groupe HEC) - Finance Department); Lyonnet Victor (HEC Paris)

Intervenant: Johan HOMBERT (HEC Paris (Groupe HEC) - Finance Department)

We study intergenerational risk sharing taking place in one of the most common retail investment products in Europe-life insurance savings contracts-focusing on the 1.4 trillion euro French market. Using regulatory and survey data, we show that contract returns are an order of magnitude less volatile than the returns of assets backing the contracts. Contract return smoothing is achieved using reserves that absorb fluctuations in asset returns and that generate intertemporal transfers across generations of investors. We estimate the average annual amount of intergenerational transfer at 1.4% of contract value, i.e., 17 billion euros per year or 0.8% of GDP. While theory asserts that intergenerational risk sharing cannot take place in competitive markets because it relies on non-exploited return predictability, we show that: (a) contracts returns are indeed predictable; (b) investor flows barely react to predictable returns; (c) observed fees offset the estimated gain from exploiting contract return predictability.

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Connected Firms: The Propagation of Idiosyncratic Shocks in Borrowing Networks

Authors : He Ai (Emory University, Goizueta Business School, Department of Finance)

Intervenant: Ai HE (Emory University, Goizueta Business School, Department of Finance)

Firms are connected if they borrow from the same lenders in the credit market. This study examines whether firm-level idiosyncratic shocks propagate in borrowing networks which are built on this type of firm link. Through increasing credit demand or loan defaults, borrower-level idiosyncratic shocks may drag the lenders into credit constraints, and then will negatively affect the subsequent credit supply to other borrowers that share the same lenders but not directly affected by these shocks. I identify idiosyncratic shocks with the occurrence of major natural disasters in the U.S. for almost 30 years. I find that disaster-affected relationship-borrowers receive more loans after the disaster, and impose substantial loan declines, output losses and equity value drops on their connected peers who are not affected by the natural disasters. This spillover effect is more severe for these connected peers in weaker relationship with the common lenders. My estimates are economically large, suggesting that firm linkages in the credit markets are an important determinant of the propagation of idiosyncratic shocks in the economy.

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Banks Defy Gravity

Authors : Delatte Anne-Laure (CNRS); Bouvatier Vincent (Université Paris Ouest - Nanterre, La Défense); Capelle-Blancard Gunther (University of Paris 1 Pantheon-Sorbonne - Centre d'Economie de la Sorbonne (CES))

Intervenant: Anne-Laure DELATTE (CNRS)

This paper provides the first quantitative assessment of the contribution of global banks in intermediating tax evasion. Applying gravity equations on a unique regulatory dataset based on comprehensive individual country-by-country reporting from all the Systemically Important Institutions in the European Union, we find that: 1) Tax havens generate an 200% extra presence of foreign banks; 2) The favorite destinations of tax evasion intermediated by European banks are Luxembourg and Monaco 3) British and German banks display the most aggressive strategies in tax havens ; 4) New transparency requirements imposed in 2015 have not changed European banks commercial presence in tax havens; 5) Banks intermediate Eur 565.2 billion of off-shore assets, that is 5% of their origin countries' GDP; 6) Banks contribute to one third of global off-shore wealth intermediation.

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International Finance (12/20/2018 at 11:00)

Model-Free International Stochastic Discount Factors

Authors : Sandulescu Mirela (University of Lugano); Trojani Fabio (University of Geneva); Vedolin Andrea (Boston University - Department of Finance & Economics);

Intervenant: Fabio TROJANI (University of Geneva)

We provide a theoretical characterization of international stochastic discount factors (SDFs) in incomplete markets under different degrees of market segmentation. Using 40 years of data on a cross-section of countries, we estimate model-free SDFs and factorize them into permanent and transitory components. We find that large permanent SDF components help to reconcile the low exchange rate volatility, the exchange rate cyclicality, and the forward premium anomaly. However, integrated markets entail highly volatile and almost perfectly comoving international SDFs. In contrast, segmented markets can generate less volatile and more dissimilar SDFs. In quest of relating the SDFs to economic fundamentals, we document strong links between proxies of financial intermediaries' risk-bearing capacity and model-free international SDFs. We interpret this evidence through the lens of an economy with two building blocks: limited participation by households and financiers who face an intermediation friction.

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International Capital Markets with Time-Varying Preferences

Authors : Curatola Giuliano (Goethe University Frankfurt - Research Center SAFE); Dergunov Ilya (Goethe University Frankfurt);

Intervenant: Giuliano CURATOLA (Goethe University Frankfurt - Research Center SAFE)

We propose a 2-country asset-pricing model where agents' preferences change endogenously as a function of the popularity of internationally traded goods. We determine the effect of the time-variation of preferences on equity markets, consumption and portfolio choices. When agents are more sensitive to the popularity of domestic consumption goods, the local stock market reacts more strongly to the preferences of local agents than to the preferences of foreign agents. Therefore, home bias arises because home-country stock represents a better investment opportunity for hedging against future fluctuations in preferences. We test our model and find that preference evolution is a plausible driver of key macroeconomic variables and stock returns.

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Global Portfolio Rebalancing and Exchange Rates

Authors : Camanho Nelson (Catholic University of Portugal (UCP) Catolica Lisbon School of Business and Economics); Hau Harald (Geneva Finance Research Institute); Rey Hélène (London Business School);

Intervenant: Nelson CAMANHO (Catholic University of Portugal (UCP) Catolica Lisbon School of Business and Economics)

We examine international equity allocations at the fund level and show how different returns on the foreign and domestic proportion of portfolios determine rebalancing behavior and trigger capital flows. We document the heterogeneity of rebalancing across fund types, its greater intensity under higher exchange rate volatility, and the exchange rate effect of such rebalancing. The observed dynamics of equity returns, exchange rates, and fund-level capital flows are compatible with a model of incomplete FX risk trading in which exchange rate risk partially segments international equity markets.

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Portfolio Management 1 (12/20/2018 at 11:00)

Correcting Alpha Misattribution in Portfolio Sorts

Authors : Hoechle Daniel (FHNW School of Business - Institute for Finance); Schmid Markus (University of Saint Gallen - Swiss Institute of Banking and Finance); Zimmermann Heinz (University of Basel - Center for Economic Science (WWZ) - Department of Finance);

Intervenant: Daniel HOECHLE (FHNW School of Business - Institute for Finance)

Portfolio sorts, as commonly employed in empirical asset pricing applications, are at risk of accidentally misattributing parts of the risk-adjusted return (or "alpha") to the firm characteristic underlying the sort. Such misattribution occurs if the firm characteristic is correlated with an unobservable yet time-persistent factor. We propose a novel, regression-based methodology for analyzing asset returns. Besides handling multiple and continuous firm characteristics, our technique can also reproduce the alpha and factor exposure estimates from all variants of sorting assets into (e.g., decile) portfolios as a special case. In our empirical analysis, we find that several well-known characteristics-based factors indeed lose their predictive power when we account for firm-specific (fixed) effects.

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Learning from Noise? Price and Liquidity Spillovers Around Mutual Fund Fire Sales

Authors : Honkanen Pekka (HEC Paris); Schmidt Daniel (HEC Paris (Groupe HEC) - Finance Department);

Intervenant: Daniel SCHMIDT (HEC Paris (Groupe HEC) - Finance Department)

We study the extent of cross-asset learning in financial markets by examining spillover effects around mutual fund fire sales. We find that the well-documented impact-reversal pattern for the returns of fire sale stocks (e.g., Coval and Stafford, 2007) spills over onto the stock returns of economic peers with a magnitude that is around one fifth of the original effect. These spillovers extend to liquidity and are not explained by common funding shocks or the hedging activity of liquidity providers. We conclude that they represent information spillovers due to learning from prices, thus identifying cross-asset learning as an important driver for the commonality in returns and liquidity.

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Monetary Policy and Equity Valuation

Authors : Mougeot Nicolas (John Molson School of Business, Concordia University)

Intervenant: Nicolas MOUGEOT (John Molson School of Business, Concordia University)

The Taylor rule (1993) states that Fed funds rates have an inflation beta equal to 1.5. If equity investors infer their long-term discount rate based upon guidance from the Federal Reserve using the Taylor rule, then earnings yields should display a positive beta to inflation. This provides a rational explanation to the empirically observed relationship between earnings yield and inflation, refuting the Money Illusion Hypothesis of Modigliani and Cohn (1979). Using an ARDL model, I find that Fed funds rates had an inflation beta between 1.55 and 1.85 over the 1978-2017 period, implying an inflation beta of earnings growth lying around one over the past 40 years. Equity investors therefore rationally discount nominal cash flows at nominal discount rate, accounting for the fact that Fed funds rates are described by the Taylor rule.

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LUNCH (12/20/2018 at 12:30)

Portfolio Management 2 (Amundi) (12/20/2018 at 14:00)

Presiding : Jocelyn MARTEL (ESSEC Business School)

What Do Mutual Fund Managers' Private Portfolios Tell Us about Their Skills?

Authors : Ibert Markus (Stockholm School of Economics - Department of Finance, Students)

Intervenant: Markus IBERT (Stockholm School of Economics - Department of Finance, Students)

The average Swedish active mutual fund manager possesses no superior ability to generate abnormal returns (alpha) in managing her fund. However, the managers who invest (a lot of) personal wealth in the very same funds they professionally manage consistently outperform. The majority of managers do not commit any personal wealth to their own funds. These managers also invest more conservatively in their personal accounts, that is they hold more cash and more passively managed products. Overall, the results suggest that fund managers, contrary to fund investors, know about their ability---or more often lack thereof---and invest their personal wealth accordingly.

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Is There Smart Money? How Information in the Futures Market Is Priced into the Cross-Section of Stock Returns with Delay

Authors : Ho Steven Wei (Columbia University, Graduate School of Arts and Sciences, Department of Economics); Lauwers Alexandre R. (University of Geneva - Graduate Institute, Geneva (IHEID));

Intervenant: Alexandre R. LAUWERS (University of Geneva - Graduate Institute, Geneva (IHEID))

We document a new empirical phenomenon in which the positions of managed money (MM) traders, who are sophisticated speculators in the commodity futures market, as disclosed by the CFTC Disaggregated Commitment of Traders (DCOT) reports, can predict the cross-section of commodity producers' stock returns in the subsequent week. Specifically, if the DCOT reports an increase in long position, a decrease in short position, an increase in net position, or an increase in the ratio of long over short position of MM, then the stock price of producers of the same commodity would increase in the following week, and the finding is robust to a variety of choices of measures and weighting schemes. The results are more pronounced in firms with higher information asymmetry. Our finding further challenges the efficient market hypothesis. We find that the positions of MM have predictive power, though positions of producers (commercial hedgers) do not.

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Fifty Shades of Active and Index Alpha

Authors : Leippold Markus (University of Zurich - Department of Banking and Finance); Rüegg Roger (University of Zurich - Department of Banking and Finance);

Intervenant: Markus LEIPPOLD (University of Zurich - Department of Banking and Finance)

There is an ongoing debate about the benefits of active investing versus index investing. Instead of jumping to a black-or-white conclusion, we describe the different shades of alpha for active and index investing. We differentiate across institutional and retail funds, before and after fees. We also benchmark active funds against one-factor, multi-factor and investable models, different markets, and different investment categories. Our empirical analysis provides evidence that the hypothesis of a zero-sum game after costs cannot be rejected for a vast majority of investment categories especially when we filter out the worst-performing mutual funds of the past year.

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Background Noise? TV Advertising Affects Real Time Investor Behavior

Authors : Zaldokas Alminas (Hong Kong University of Science & Technology (HKUST) - Department of Finance); Liaukonyte Jura (Cornell University);

Intervenant: Alminas ZALDOKAS (Hong Kong University of Science & Technology (HKUST) - Department of Finance)

Using minute-by-minute TV advertising data covering around 326,000 ads, 301 firms,and $20 billion in ad spending, we study the real time effects of TV advertising on investor search for online financial information. Our identification strategy exploits the fact that viewers in different U.S. time zones get exposed to the same programming and national advertising at different times, allowing us to control for contemporaneous confounding effects. We find that a TV commercial leads to a 3% increase in SEC EDGAR queries within 15 minutes of the airing of that commercial. In a smaller sample, we find similar increases in Google searches for financial information. Such advertising effects spill over through horizontal and vertical product market links to financial information searches on closest rivals and suppliers. These ad-induced search lifts are associated with higher stock trading volume in the following trading day and higher overnight stock price returns.

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Market Microstructure 2 (BEDOFIH) (12/20/2018 at 14:00)

OTC Discount

Authors : de Roure Calebe (Reserve Bank of Australia); Moench Emanuel (Deutsche Bundesbank); Pelizzon Loriana (Goethe University Frankfurt - Faculty of Economics and Business Administration); Schneider Michael (Deutsche Bundesbank);

Intervenant: Emanuel MOENCH (Deutsche Bundesbank)

This paper studies venue choice and price discrimination in the market for German Bunds, the worldƒ??s second most liquid treasury market. Dealers trade Bunds in a hybrid market with electronic centralized limit order books (on the interdealer exchange MTS) and a dominant over-the-counter (OTC) segment. Using a unique regulatory dataset of OTC Bund transactions matched with the full limit order book of MTS, we show that the exchange provides an outside option to the OTC search process and, crucially, immediacy. OTC trades carry an average discount of 1.3 - 3.7 basis points relative to trading on exchange, and OTC round-trip costs are on average up to 50% lower than on the MTS market. OTC trades by dealers with access to the exchange are on average 0.6 basis points cheaper than those by non-MTS dealers. Our findings highlight the complementary roles played by centralized limit order book and OTC markets.

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Electronic Trading in OTC Markets vs. Centralized Exchange

Authors : Liu Ying (University of Lausanne - Institute of Banking and Finance (IBF)); Vogel Sebastian (Ecole Polytechnique Fédérale de Lausanne); Zhang Yuan (Ecole Polytechnique Fédérale de Lausanne);

Intervenant: Sebastian VOGEL (Ecole Polytechnique Fédérale de Lausanne)

We model a two-tiered market structure in which an investor can trade an asset on a trading platform with a set of dealers who in turn have access to an interdealer market. The investor's order is informative about the asset's payoff and dealers who were contacted by the investor use this information in the interdealer market. Increasing the number of contacted dealers lowers markups through competition but increases the dealers' costs of providing the asset through information leakage. We then compare a centralized market in which investors can trade among themselves in a central limit order book to a market in which investors have to use the electronic platform to trade the asset. With imperfect competition among dealers, investor welfare is higher in the centralized market if private values are strongly dispersed or if the mass of investors is large.

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Why Trade Over-the-Counter? When Investors Want Price Discrimination

Authors : Lee Tomy (Central European University); Wang Chaojun (University of Pennsylvania - The Wharton School)

Intervenant: Tomy LEE (Central European University)

Despite the availability of low-cost exchanges, over-the-counter (OTC) trading is pervasive for most assets. We explain the prevalence of OTC trading using a model of adverse selection, in which informed and uninformed investors choose to trade over-the-counter or on an exchange. OTC dealers' ability to price discriminate allows them to imperfectly cream-skim the uninformed investors from the exchange. Assets with a higher share of trades executed on exchanges are predicted to have wider bid-ask spreads on those exchanges, as supported by evidence from US stocks. Having an OTC market can reduce welfare while increasing total trade volume and decreasing average bid-ask spread. Specifically, for assets that are mostly traded over-the-counter (such as swaps and bonds), having the OTC market actually harms welfare. Our results justify recent policies that seek to end OTC trading in such assets.

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The Informational Value of Consensus Prices: Evidence from the OTC Derivatives Market

Authors : Ergun Lerby Murat (London School of Economics & Political Science (LSE)); Uthemann Andreas (London School of Economics & Political Science (LSE));

Intervenant: Lerby Murat ERGUN (London School of Economics & Political Science (LSE))

This paper provides empirical evidence on the ability of consensus prices to reduce valuation uncertainty in the over-the-counter market for financial derivatives. The analysis is based on a proprietary data set of price estimates for S&P500 index options provided by major broker-dealers to a consensus pricing service. We develop and estimate a model of learning about fundamental asset values from consensus prices. The panel dimension of the data set allows us to estimate Bayesian updating dynamics at the individual broker-dealer level. We find that uncertainty about index option values, as measured by the variance of broker-dealers' posterior beliefs about the options' fundamental value, is substantial across the volatility surface of S&P500 index options that are traded over-the-counter. The 95% confidence intervals around posterior means can be as large as 10 volatility points for index options with strike prices that correspond to extreme moves of the S&P500 index. Having access to consensus pricing data is found to significantly reduce broker-dealers' strategic uncertainty, that is uncertainty about the positioning of their option valuations in relation to other market participants' valuations.

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Asset Pricing 3 (12/20/2018 at 14:00)

Presiding : Franck MORAUX (Université de Rennes 1)

Capital Heterogeneity, Time-to-Build, and Return Predictability

Authors : Luo Ding (University of Minnesota - Department of Finance)

Intervenant: Ding LUO (University of Minnesota - Department of Finance)

I study how two major types of business investment, equipment and structures, are differently linked to stock returns. I empirically show that the investment rate of equipment has a significantly stronger predictive power for stock returns than the investment rate of structures, both in-sample and out-of-sample, using US aggregate-, US asset-, US industry-, and UK aggregate-level data. To explain this empirical finding, I build a quantitative general equilibrium production model in which it takes a shorter time-to-build for equipment investment than for structures investment to transform into productive capital. In the model, equipment investment reacts to productivity shocks in a more timely manner, and thus it reflects more of the information contained in stock prices. In addition, the model provides theoretical support for previous empirical findings of return predictability from planned investment.

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Bank Loan Undrawn Spreads and the Predictability of Stock Returns

Authors : Gu Lifeng (The University of Hong Kong); Ho Steven Wei (Columbia University, Graduate School of Arts and Sciences, Department of Economics); Li Tong (The University of Hong Kong);

Intervenant: Tong LI (The University of Hong Kong)

We document a new empirical finding that, in the cross-section, the information contained in bank loans' forward-looking uncertainty measure can predict firms' returns across a range of time horizons, in that firms having loans with high uncertainty measure will under-perform firms having loans with low uncertainty measure. This effect is separate from previously documented asset pricing puzzles related to idiosyncratic volatility, analyst forecast dispersion, and credit risk. We believe return predictability arises because banks have private information regarding firms' future prospects including operating performance and cash flow uncertainty, and we indeed find the predictability of proxies of these two variables. A long-short strategy based on this finding can generate a significant alpha of over 7% per annum. In addition, the return effect is more pronounced for firms with fewer analyst coverage and lower institutional ownership.

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Rediscover Predictability: Information from the Relative Prices of Long-Term and Short-Term Dividends

Authors : Li Ye (Ohio State University); Wang Chen (Yale School of Management);

Intervenant: Ye LI (Ohio State University)

The prices of dividends at alternative horizons contain critical information on the behavior of aggregate stock market. The ratio between prices of long- and short-term dividends, "price ratio" (pr), predicts annual market return with an out-of-sample R2 of 19%. pr subsumes the predictive power of traditional price-dividend ratio (pd). After orthogonalized to pr, the residuals of pd strongly predict dividend growth. Using an exponential-affine model, we show a one-to-one mapping between pr and the expected market return when the expectation of future cash flow is transient. Moreover, we find that return predictability is stronger after market downturns, and holds outside the U.S. As an economic test, shocks to pr are priced in the cross-section of stocks, consistent with ICAPM. Our measure of expected return declines during monetary expansions, and varies strongly with the conditions of macroeconomy, financial intermediaries, and sentiment.

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The Contribution of Mispricing to Expected Returns

Authors : Hiraki Kazuhiro (Queen Mary, University of London, School of Economics and Finance); Skiadopoulos George S. (Queen Mary, University of London, School of Economics and Finance);

Intervenant: Kazuhiro HIRAKI (Queen Mary, University of London, School of Economics and Finance)

We derive an option-based formula to estimate the contribution of stock mispricing to expected returns (CMER) within a ‹ªnancial intermediary equilibrium asset pricing model with market frictions. Our formula makes no assumptions on the sources of mispricing nor on investors' preferences. We document that CMER is sizable, it predicts stock returns and it subsumes the e‹ª?ect of frictions on expected returns. We also ‹ªnd that standard asset pricing models may explain expected returns once CMER is accounted for. Moreover, we show that various option-implied measures proxy CMER, thus providing a theoretical explanation for their ability to predict stock returns.

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Banking / Financial Intermediation 2 (12/20/2018 at 14:00)

Marketplace Lending: A New Banking Paradigm?

Authors : Vallée Boris (Harvard Business School - Finance Unit); Zeng Yao (University of Washington - Michael G. Foster School of Business)

Intervenant: Boris VALLEE (Harvard Business School - Finance Unit)

Marketplace lending relies on screening and information production by investors, a major deviation from the traditional banking paradigm. Theoretically, the participation of sophisticated investors improves screening outcomes but also creates adverse selection among investors. In maximizing loan volume, the platform trades off these two forces. As the platform develops, it optimally increases platform pre-screening intensity but decreases information provision to investors. Using novel investor-level data, we find that sophisticated investors systematically outperform, and this outperformance shrinks when the platform reduces information provision to investors. Our findings shed light on the optimal distribution of information production in this new lending model.

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Lending Technologies and Lending Relationships

Authors : Karapetyan Artashes (BI Norwegian Business School); Stacescu Bogdan (BI Norwegian Business School)

Intervenant: Bogdan STACESCU (BI Norwegian Business School)

We examine banks' choice between two costly instruments used to identify good loan applicants: direct screening by acquiring borrower-specific information and collateral requirements. We show that with longer relationships the preference for screening increases both in initial and in later periods. Total welfare is enhanced as a result of more efficient selection, and access to credit can be improved. The model explains the reduced incidence of collateral, and potentially higher interest rates in later periods for safer borrowers. The results are stronger under more intense bank competition. Our findings support policies conducive to enduring lending relationships.

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Taxing Bank Leverage: The Effects on Bank Capital Structure, Credit Supply and Risk-Taking

Authors : Celerier Claire (University of Toronto - Rotman School of Management); Kick Thomas K. (Deutsche Bundesbank); Ongena Steven (University of Zurich - Department of Banking and Finance)

Intervenant: Claire CELERIER (University of Toronto - Rotman School of Management)

We investigate whether taxation can be used to contain bank leverage, while leaving the supply of credit unaffected. We exploit the staggered introduction between 1996 and 2012 across Europe of tax reforms that increase the fiscal cost of leverage. Employing both bank- and loan-level data, we estimate the impact of the reforms on the leverage of banks and their supply of credit. We find that tax reforms that increase the cost of leverage lead banks to rely more on equity, to shift the composition of their assets towards loans, and to expand their lending to firms without incurring more risk.

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The Exchange Rate Disconnect and the Bank Lending Channel: Evidence from Switzerland

Authors : Agarwal Isha (Cornell University)

Intervenant: Isha AGARWAL (Cornell University)

Using the January 2015 episode of the Swiss franc appreciation as an exogenous exchange rate shock, this paper investigates the role of bank-lending channel in explaining the exchange rate disconnect puzzle. I construct a novel dataset on foreign currency exposure of Swiss banks and find that banks with a net liability foreign currency exposure experience a higher loan growth in the post-shock period relative to banks with a net foreign currency asset exposure. This credit supply shock positively affects investment of bank dependent firms and mitigates the negative effect of currency appreciation on exporters. This finding suggests that the bank lending channel of exchange rates offsets the negative effect of currency appreciation on exporting firms' investment, and can explain why currency appreciations are not always contractionary. This channel matters more for emerging markets as compared to advanced economies, and has important policy implications for monetary policy in small open economies.

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Corporate Finance (12/20/2018 at 14:00)

Presiding : Navin CHOPRA (Kellogg School of Management)

Shadow Pills and Long-Term Firm Value

Authors : Cremers Martijn (University of Notre Dame); Guernsey Scott B. (University of Cambridge); Litov Lubomir P. (University of Oklahoma - Michael F. Price College of Business); Sepe Simone M. (University of Arizona - James E. Rogers College of Law);

Intervenant: Scott B. GUERNSEY (University of Cambridge)

This paper analyzes the value impact of the right to adopt a poison pill - or shadow pill - on long-term firm value, exploiting the quasi-natural experiment provided by the staggered adoption of poison pill laws validating the use of the pill in 35 U.S. states over the period 1986 to 2009. We document that the availability of a shadow pill results in an economically and statistically significant increase in firm value, especially for firms more engaged in innovation or with stronger stakeholder relationships. Our findings are robust to matching and portfolio analysis, and support the bonding hypothesis of takeover defenses.

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Noise from Other Industries: Overgeneralization and Analyst Belief

Authors : Wang Renjie (Erasmus University Rotterdam (EUR), Erasmus School of Economics (ESE), Students)

Intervenant: Renjie WANG (Erasmus University Rotterdam (EUR), Erasmus School of Economics (ESE), Students)

This paper studies whether analysts' earnings expectations are influenced by the recent performance of other industries they cover, as many analysts have to process information about two or more different industries. I show that negative shocks to one coverage industry lead analysts to make more pessimistic earnings forecasts for firms in another industry, relative to their counterparts who cover the same firm at the same time. When investigating whether their pessimism is based on information or noise, I find that their forecasts are lower than the actual earnings and relatively less accurate, while negative shocks to arguably unrelated industries also make those analysts more pessimistic. These findings are consistent with the notion that analysts heuristically overgeneralize other industries' performance and incorrectly lower their expectations. Moreover, I demonstrate that analyst overgeneralization has substantial impacts on financial markets: this heuristic significantly increases differences in analysts' opinions about firms and thereby induces higher trading volumes and larger return volatilities.

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Labor Market Competitor Network and the Transmission of Shocks

Authors : Liu Yukun (Yale University, Department of Economics, Students); Wu Xi (New York University (NYU) - Leonard N. Stern School of Business);

Intervenant: Yukun LIU (Yale University, Department of Economics, Students)

We study how firms differ from their competitors in the labor market by constructing a time-varying labor market competitor network. Using a novel dataset covering the near-universe of online job postings, we measure the spatial distance of labor demand between every two firms. We show that firms' labor market competitors are distinct from their product market rivals: the overlap is less than 20%. Our network explains a substantial amount of cross-sectional variations in firms' labor characteristics and performances. We show that labor and industry shocks transmit along the network. Firstly, news about a firm's labor market, proxied by the returns of its labor-linked firms, has strong predictive power for the focal firm's subsequent returns - a long-short strategy generates monthly alpha of 92 basis points. Secondly, using the financial crisis as a shock to the financial industry, we show that it affected non-financial firms through the labor network.

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What If Dividends Were Tax-Exempt? Evidence from a Natural Experiment

Authors : Isakov Dusan (University of Fribourg (Switzerland) - Faculty of Economics and Social Science); Perignon Christophe (HEC Paris (Groupe HEC) - Finance Department); Weisskopf Jean-Philippe (Ecole Hôtelière de Lausanne);

Intervenant: Dusan ISAKOV (University of Fribourg (Switzerland) - Faculty of Economics and Social Science)

In this paper, we study the effect of dividend taxes on the payout and investment policy of listed firms. To do so, we exploit a unique setting in Switzerland where some, but not all, firms have suddenly been able to pay tax-exempted dividends to their shareholders following the corporate tax reform of 2011. Using a difference-in-differences specification, we compare the payout and investment policy of firms being treated by the reform with those of firms that are not. We find that treated firms increase massively their dividends after the tax cut. We, however, do not report a causal impact of the tax cut on the firms' investments. We show that the tax-inelasticity of investment can be attributed to a significant drop in retained earnings. Indeed, the rise in dividends is not compensated by an equally sized drop in stock repurchases. Furthermore, treated firms do not raise enough capital and/or do not significantly reduce their cash reserves to compensate for the contraction in retained earnings. At least one of the two channels (equity and cash) has to be at play to generate the positive impact on investment that is promised by the politicians implementing such fiscal reforms.

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COFFEE BREAK (12/20/2018 at 16:00)

Entrepreneurial Finance (Ardian) (12/20/2018 at 16:30)

Mind the Gap: Gender Stereotypes and Entrepreneurs' Financing

Authors : Hébert Camille (Tilburg University)

Intervenant: Camille HEBERT (Tilburg University)

The participation of women in entrepreneurship is lower than that of men but is heterogeneous across sectors. The two competing views are that women have different objective functions, or that investors are biased against female entrepreneurs. Using administrative data from France on financing sources of early-stage entrepreneurs, I provide new evidence of the effect of gender stereotypes on entrepreneurs' fund-raising success. Female entrepreneurs are at the aggregate level less likely to raise external equity including venture capital finance. Female entrepreneurs who draw into industries where they fit with the archetype, i.e., "female-type activities", are more likely to contract with external equity investors relative to men in those sectors and to women in other sectors. The evidence suggests that the negative relationship between women and external equity finance is partly due to the fact that male-type sectors represent a larger share of the economy, such as stereotypes favouring men dominate those of women. My empirical design ensures that the results are not driven by initial start-ups performance or by differences in demand functions of external financing across individuals.

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The Long-Term Consequences of the Tech Bubble on Skilled Workers' Earnings

Authors : Hombert Johan (HEC Paris (Groupe HEC) - Finance Department); Matray Adrien (Princeton University);

Intervenant: Adrien MATRAY (Princeton University)

We use French matched employer-employee data to track skilled individuals entering the labor market during the late 1990s tech bubble. The boom led to a sharp increase in the share of skilled entrants in the tech sector, which offers relative higher wages at the time. When the boom ends, however, the wage premium reverses and these skilled workers end up with a 5.5% wage discount ten years out, relative to similar peers who started in a non-tech sector. Other moments of the wage distribution of the boom, pre-boom, and post-boom cohorts are inconsistent with explanations based on a selection effect or a cycle effect. Instead, we provide suggestive evidence that workers allocated to the booming tech sector accumulate human capital early in their career that rapidly becomes obsolete.

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Herding in Equity Crowdfunding

Authors : Astebro Thomas B. (HEC Paris - Economics and Decision Sciences); Fernandez Sierra Manuel (University of Essex); Lovo Stefano (HEC Paris (Groupe HEC) - Finance Department); Vulkan Nir (University of Oxford - Said Business School);

Intervenant: Stefano LOVO (HEC Paris (Groupe HEC) - Finance Department)

Equity crowdfunding has recently become available and is quickly expanding. Concerns have been raised that investors ('backers') may be following the crowd 'too much' and making investments ('pledges') based on past investments rather than private information. We construct a model of equilibrium rational herding where uninformed investors follow signals generated by in formed investors with private information and a public belief generated by all past pledges. We show that large investments provide positive public information about the project's quality, whereas periods of absence of investment provide negative information. An information cascade is shown to occur only if not enough positive signals are generated. We then empirically analyse a large number of pledges from a leading European equity crowdfunding platform. We show that a pledge is strongly affected by both the size of the most recent pledge, and the time elapsed since the most recent pledge. For pledges that are not adjacent in the order of arrivals, the correlation between their sizes is still positive, but after being separated by two or more intervening pledges the correlation is no longer statistically significant. The effects are strongest for less-informed investors, and in some specifications the effects are strongest at the early stage of a campaign. We find similar results in IV analysis. Results are consistent with our model and inconsistent with some alternative models.

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Corporate Governance 2 (12/20/2018 at 16:30)

The Origins and Real Effects of the Gender Gap: Evidence from CEOs' Formative Years

Authors : Duchin Ran (University of Washington - Michael G. Foster School of Business); Simutin Mikhail (University of Toronto - Rotman School of Management); Sosyura Denis (Arizona State University);

Intervenant: Denis SOSYURA (Arizona State University)

CEOs allocate more investment capital to male managers than to female managers in the same divisions. Using data from individual Census records, we find that this gender gap is driven by CEOs who grew up in male-dominated families - those where the father was the only income earner and had more education than the mother. The gender gap also increases for CEOs who attended all-male high schools and grew up in neighborhoods with greater gender inequality. The effect of gender on capital budgeting introduces frictions and erodes investment efficiency. Overall, the gender gap originates in CEO preferences developed during formative years and produces significant real effects.

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Performance-Based Turnover on Corporate Boards

Authors : Bates Thomas W. (Arizona State University - Department of Finance); Becher David A. (Drexel University); Wilson Jared I. (Indiana University - Kelley School of Business);

Intervenant: Thomas W. BATES (Arizona State University - Department of Finance)

We document an economically significant relation between director turnover and prior firm performance. This relation manifests in idiosyncratic stock returns consistent with relative performance evaluation and the monitoring of actions attributable to directors. The director turnover-performance sensitivity increases substantially throughout the 2000s, and varies with a number of governance characteristics, most notably with the presence of an active external blockholder. Directors who leave firms following poor performance are significantly less likely to obtain new directorships in the future. In sum, the threat of replacement for poor firm performance has become an increasingly significant incentive for the directors of public corporations.

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Are Investors Aware of Ownership Connections?

Authors : Ginglinger Edith (Université Paris Dauphine); Hebert Camille (Tilburg University); Renneboog Luc (Tilburg University - Department of Finance);

Intervenant: Edith GINGLINGER (Université Paris Dauphine)

We examine the market reactions to earnings announcements within a parent-subsidiary ownership structure. We find that the parents' investors react to all announcements within the group either immediately or with delay, whereas subsidiaries' investors only react to their own firm's announcements, ignoring predictive information released by the parent. Multiple announcements within a group lead to enhanced transparency for parents' investors, who benefit from detailed information on the origin of their firm's earnings. In contrast, subsidiaries' investors appear unaware of ownership links, and behave as inattentive investors. Inattention is worsened by geographical diversification of affiliated firms and by indirect ownership, but cannot be explained by strategic timing of the disclosure of earnings surprises, day-of-the-week effect or seasonality, internal capital markets, or synergy-related explanations across industries. Institutional investors do not seem to be smarter at understanding group structures, with the exception of active investors owning shares in both parent and subsidiary companies.

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Market Microstructure 3 (BEDOFIH) (12/20/2018 at 16:30)

Demand for Information, Macroeconomic Uncertainty, and the Response of U.S. Treasury Securities to News

Authors : Benamar Hedi (Board of Governors of the Federal Reserve System); Foucault Thierry (HEC Paris (Groupe HEC) - Finance Department); Vega Clara (Board of Governors of the Federal Reserve System);

Intervenant: Hedi BENAMAR (Board of Governors of the Federal Reserve System)

We measure demand for information prior to nonfarm payroll announcements using a novel dataset consisting of clicks on news articles. We find that when information demand is high shortly before the release of the nonfarm payroll announcement, the price response of U.S. Treasury note futures to nonfarm payroll news surprises doubles. We argue that this relationship stems from the fact that market participants have more incentive to collect information when uncertainty about asset payoffs is higher, as implied by Bayesian learning models. Thus, high information demand about macroeconomic news is a proxy for high macroeconomic uncertainty.

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High-Frequency Trading During Flash Crashes: Walk of Fame or Hall of Shame?

Authors : Bellia Mario (Goethe University Frankfurt - Research Center SAFE); Christensen Kim (University of Aarhus - CREATES); Kolokolov Alexey (Goethe University Frankfurt - Research Center SAFE); Pelizzon Loriana (Goethe University Frankfurt - Faculty of Economics and Business Administration); Reno Roberto (Department of Economics, University of Verona)

Intervenant: Mario BELLIA (Goethe University Frankfurt - Research Center SAFE)

We investigate the role of High Frequency Traders (HFTs) during flash crashes. By using a new methodology to identify flash crashes, defined as sudden and extreme price movements which occur in relatively short time and then reverts to the initial level, we identify 65 flash crashes episodes among 37 stocks that belong to the CAC40 traded in the NYSE-Euronext Paris market in 2013. We show that HFTs are responsible for initiating the crash in roughly 70% of the considered events, and that they strongly contribute to exacerbating the consequences of the crash, especially at his climax. In most of the cases, instead of providing liquidity, they start selling more as the crash develops. HFTs do not even contribute to recovery after the end of the crash, but they continue to initiate selling orders. This is worryingly true even for HFTs which agreed to provide liquidity under a market making agreement, especially if flash crashes occur simultaneously on several stocks. Among the HFTs, Investment Banks HFTs played the largest role and are those that are the most aggressive in selling during flash crashes.

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Trading Complex Risks

Authors : Fattinger Felix (The University of Melbourne - Department of Finance)

Intervenant: Felix FATTINGER (The University of Melbourne - Department of Finance)

Complex risks differ from simple risks in that agents facing them only possess imperfect information about the underlying objective probabilities. This paper studies how complex risks are priced by and shared among heterogeneous investors in a Walrasian market. I apply decision theory under ambiguity to derive robust predictions regarding the trading of complex risks in the absence of aggregate uncertainty. I test these predictions in the laboratory. The experimental data provides strong evidence for theory's predicted reduction in subjects' price sensitivity under complex risks. While complexity induces more noise in individual trading decisions, market outcomes remain theory-consistent. This striking feature can be reconciled with a random choice model, where the bounds on rationality are reinforced by complexity. When moving from simple to complex risks, equilibrium prices become more sensitive whereas risk allocations turn less sensitive to noise introduced by imperfectly rational subjects. Markets' effectiveness in aggregating beliefs about complex risks is determined by the trade-off between reduced price sensitivity and reinforced bounded rationality. Moreover, my results imply that complexity has similar but more pronounced effects on market outcomes than ambiguity induced by conventional Ellsberg urns.

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Banking / Financial Intermediation 3 (12/20/2018 at 16:30)

Deposit Windfalls and Bank Reporting Quality: Evidence from Shale Booms

Authors : Wu Xi (New York University (NYU) - Leonard N. Stern School of Business)

Intervenant: Xi WU (New York University (NYU) - Leonard N. Stern School of Business)

This paper investigates how depositor information problems affect bank reporting quality. Using plausibly exogenous deposit windfalls coming from shale and oil leases, I find that banks exposed to shale booms provide higher reporting quality, measured as loan loss provision timeliness, compared to other banks. Improved loan provisioning timeliness is concentrated in banks with stronger incentives to attract deposits-smaller banks and banks with fewer uninsured deposits. Moreover, banks that improve the most tend to experience a larger increase in their subsequent deposit levels, suggesting that depositors value timely information. Collectively, my results suggest that information asymmetry between depositors and banks is an important determinant of banks' reporting incentives.

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Operating Leverage, Risk Taking and Coordination Failures

Authors : Bouvard Matthieu (McGill University - Desautels Faculty of Management); De Motta Adolfo (McGill University - Desautels Faculty of Management);

Intervenant: Matthieu BOUVARD (McGill University - Desautels Faculty of Management)

We study an economy with demand spillovers where firms' decisions to produce are strategic complements. Firms have access to an increasing returns to scale technology and choose their operating leverage trading off higher fixed costs for lower variable costs. The choice of operating leverage determines the firm's systematic risk, that is, determines how responsive the firm's profits are to an aggregate labor productivity shock, which is the only risk factor in this economy. We show that firms take excessive risk as they do not internalize that higher operating leverage increases the likelihood of a coordination failure where output is inefficiently depressed across the economy. More generally, our analysis suggests that individual risk-taking decisions aggregate into excessive output volatility in the presence of strategic complementarities among agents.

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External Credit Ratings and Bank Lending

Authors : Cahn Christophe (Banque de France - Direction des Entreprises); Girotti Mattia (Banque de France); Salvade Federica (PSB Paris School of Business)

Intervenant: Mattia GIROTTI (Banque de France)

We study how third-party rating information influences firms' access to bank financing and real outcomes. We exploit a refinement in the rating scale that occurred in France in 2004. The new rules made some firms within each rating class receive a rating surprise, without affecting their risk weight in banks' required capital calculation. We find that such firms enjoy greater and cheaper access to bank credit. Specifically, they obtain more credit from previously less informed lenders, and start new bank relationships more easily. Consequently, they rely on equity to a lower extent and invest more. These findings suggest that credit ratings may help reducing the hold-up problem and increase competition among banks.

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Asset Pricing 4 (12/20/2018 at 16:30)

Crash Risk in Individual Stocks

Authors : Pederzoli Paola (University of Geneva)

Intervenant: Paola PEDERZOLI (University of Geneva)

In this study, I implement a novel methodology to extract crash risk premia from options and stock markets. I document a dramatic increase in crash risk premia after the 2008/2009 financial crisis, indicating that investors are willing to pay high insurance to hedge against crashes in individual stocks. My results apply to all sectors but are most pronounced for the financial sector. At the same time, crash risk premia on the market index remained at pre-crisis levels. I theoretically explain this puzzling feature in an economy where investors face short-sale constraints. Under short-sale constraints, prices are less informationally efficient which can explain the increase in downside risk in individual stocks. In the data, I document a strong link between proxies of short-sale constraints and crash risk premia.

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Disastrous Defaults

Authors : Gourieroux Christian (University of Toronto - Department of Economics); Renne Jean-Paul (University of Lausanne - School of Economics and Business Administration (HEC-Lausanne)); Mouabbi Sarah (Banque de France); Monfort Alain (National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST));

Intervenant: Jean-Paul RENNE (University of Lausanne - School of Economics and Business Administration (HEC-Lausanne))

As the recent financial crisis illustrated, the default of certain entities can have disastrous effects on the economy. This paper presents a framework aimed at analysing the asset pricing and macro implications of the existence of "systemic defaults". This framework is flexible and tractable enough to simultaneously replicate the price fluctuations of various far-out-of-the-money (disaster-exposed) credit and equity derivatives. According to our estimation results, market data imply that the default of a systemic entity is anticipated to be followed by a 4% decrease in consumption. The recessionary influence of systemic defaults implies that financial instruments whose payoffs are exposed to such credit events carry substantial risk premiums.

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System 1, System 2, and Speculative Trading

Authors : Boyer M. Martin (HEC Montreal - Department of Finance); Ouzan Samuel (Neoma Business School);

Intervenant: Samuel OUZAN (Neoma Business School)

Loss aversion and overconfidence are arguably the two most studied behavioral biases in finance, and yet often considered having contradictory effects on risk taking. Overconfident investors are generally more prone to take-on risk, whereas loss averse investors tend to be more cautious. We study their marginal impacts on trading. We propose a model in which rational investors and investors who are jointly loss averse and overconfident, disagree over public signals. The proposed theory succeeds to rationalize asymmetries in returns: It generates a positive correlation between volume and aggregate information, a high-volume return premium, positive unconditional skewness and explains cross-sectional variation in skewness at the firm level.

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Interest Rates (12/20/2018 at 16:30)

Macro Risks and the Term Structure of Interest Rates

Authors : Bekaert Geert (Columbia Business School - Finance and Economics); Engstrom Eric (U.S. Board of Governors of the Federal Reserve System - Division of Research and Statistics, Capital Markets); Ermolov Andrey (Gabelli School of Business, Fordham University);

Intervenant: Andrey ERMOLOV (Gabelli School of Business, Fordham University)

We use non-Gaussian features in U.S. macroeconomic data to identify aggregate supply and demand shocks while imposing minimal economic assumptions. Recessions in the 1970s and 1980s were driven primarily by supply shocks; later recessions by demand shocks. We estimate macro risk factors that drive "bad" (negatively skewed) and "good" (positively skewed) variation for supply and demand shocks. We document that macro risks significantly contribute to the variation of yields, risk premiums and return variances for nominal bonds. While overall bond risk premiums are counter-cyclical, an increase in aggregate demand variance significantly lowers risk premiums.

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Special Repo Rates and the Cross-Section of Bond Prices

Authors : D'Amico Stefania (Federal Reserve Bank of Chicago); Pancost N. Aaron (University of Texas at Austin McCombs School of Business);

Intervenant: N. Aaron PANCOST (University of Texas at Austin McCombs School of Business);

We estimate a dynamic no-arbitrage term structure model that jointly prices the cross-section of Treasury bonds and special repo rates. We show that special repo rates on on-the-run Treasuries can explain almost 80\% of the on-the-run premium, but only after incorporating a time-varying risk premium on the special spreads of both on- and off-the-run bonds. We show that the repo risk premium is priced in the cross-section of off-the-run bonds with very low special spreads.

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Is Normal Backwardation Normal? Valuing Financial Futures with a Stochastic, Endogenous Index-Rate Covariance

Authors : Raimbourg Philippe (Université Paris I Panthéon-Sorbonne); Zimmermann Paul (Catholic University of Lille - IESEG School of Management, Lille Campus);

Intervenant: Paul ZIMMERMANN (Catholic University of Lille - IESEG School of Management, Lille Campus)

Revisiting the two-factor valuation of financial futures contracts and their derivatives, we propose a new approach in which the covariance process between the underlying asset price and the money market interest rate is set endogenously according to investors' arbitrage operations. The asset-rate covariance turns out to be stochastic, thereby explicitly capturing futures contracts' marking-to-market feature. Our numerical simulations show significant deviations from the traditional cost-of-carry model of futures prices, in line with Cox, Ingersoll and Ross's (1981) theory and a large corpus of past empirical research. Our empirical tests show an impact of several index points magnitude from the recent US Federal Reserve interest rate hikes on the S&P 500 daily spot-futures basis, highlighting the effect of monetary policy at low frequencies on the backwardation vs. contango regime, and shedding new light on Keynes's (1930) theory of normal backwardation.

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COCKTAIL & BEST PAPER AWARD (12/20/2018 at 18:00)


  • In 2017, the prize was awarded to:
    • Thorsten MARTIN & Clemens A. OTTO for the paper entitled "The Effect of Hold-Up Problems on Corporate Investment: Evidence from Import Tariff Reductions".
  • In 2016, the prize was awarded to:
    • Matthew DARST & Ehraz REFAYET for the paper entitled "Credit Default Swaps in General Equilibrium: Spillovers, Credit Spreads, and Endogenous Default".
  • In 2015, the prize was awarded to:
    • Roberto MARFE for the paper entitled "Labor Rigidity and the Dynamics of the Value Premium"
  • In 2014, the prizes were awarded to:
    • Corporate finance: Taylor BEGLEY for the paper entitled "The Real Costs of Corporate Credit Ratings"
    • Financial markets: Shiyang HUANG for the paper entitled "The Effect of Options on Information Acquisition and Asset Pricing"
  • In 2013, the prizes were awarded to:
    • Corporate finance: Clemens OTTO & Paolo VOLPIN for the paper entitled "Marking to Market and Inefficient Investment Décisions"
    • Financial markets: Matthias EFING & Harald HAU for the paper entitled "Structured Debt Ratings: Evidence on Conflicts of Interest"
    • High frequency data / Microstructure: Bart YUESHEN for the paper entitled "Queuing Uncertainty"


Registration are open.

Registration fees 2018: 250€

Please register on SSRN website :

For any question you can contact the organizing committee :


The Paris December 2018 Finance Meeting will be held on December 20, 2018 at the Novotel Paris les Halles hotel in the heart of historical Paris.


Novotel Paris Les Halles Hotel
Place Marguerite de Navarre
75001 PARIS

Special rate for participants

After your registration, if you want to get a special rate at the Novotel Paris les Halles hotel, please contact the organizing committee : 



Metro station: "Châtelet"
Lines 1, 7 and 11: exit "Place Ste Opportune"
Line 4: exit "Rue de la Lingerie"
Line 14: exit "n°10"
RER station: "Châtelet-les-Halles"
Lines A, B and D : exit "Forum des Halles" then follow the exit "Porte Berger"