Paris December 2018
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Presentation
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 2018, the submissions were received from :
the U.S. (90), France (56), Germany (46), the U.K. (30), Canada (21), Switzerland (21), Austria (14), the Netherlands (13), China (9), Belgium (8), Hong-Kong (8), Norway (5), Singapore (5), Denmark (3), Spain (3), Finland (2), Lebanon (2), Sweden (2), Brazil (1), Czech Republic (1), Greece (1), Hungary (1), Italy (1), Ireland (1), Luxembourg (1), New Zealand (1), Portugal (1), South Korea (1), Tunisia (1), Turkey (1).
OUR SPONSORS :
Committee
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 EDHEC London Schoool of Economics TSE & IEA, Université de Toulouse 1 Capitole London School of Economics EPFL 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 EPFL & SFI EUROFIDAI - CNRS 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 EPFL University of Mannheim Grenoble INP Humboldt University of Berlin University of Manchester EM Lyon University of Florida ESSEC Business School EDHEC 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 EBAPE/FVG 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 HKUST |
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.
SUBMISSION PROCESS
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.
DEADLINE
Papers must be submitted online by June 4, 2018.
PAPER DIFFUSION
Accepted papers will be posted on the Financial Economic Network (SSRN) and the website of the conference.
Submission
SUBMISSION PROCESS
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€.
SUBMISSIONS ARE CLOSED SINCE JUNE 4, 2018
(you will be redirected to the SSRN website)
DEADLINE
Papers must be submitted online by June 4, 2018.
PAPER DIFFUSION
Accepted papers will be posted on the Financial Economic Network (SSRN) and the website of EUROFIDAI.
Program
Show all sessions
Planning from December 20, Thursday | |
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08:00 | WELCOME & REGISTRATION |
WELCOME & REGISTRATION (12/20/2018 at 08:00) |
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09:00 | Capital Structure |
Capital Structure (12/20/2018 at 09:00)Presiding : Edith GINGLINGER (Université Paris-Dauphine)Managerial Compensation Incentives and Corporate Debt Maturity: Evidence from FAS 123RAuthors : Hong Jieying (ESSEC Business School)Intervenant: Hong Jieying (ESSEC Business School) Discussant: Petit-Romec Arthur (Skema 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. Download paper Debt as Threat: Evidence from Union-Sponsored Shareholder ProposalsAuthors : Di Giuli Alberta (ESCP Europe - Department of Finance); Petit-Romec Arthur (Skema Business School)Intervenant: Petit-Romec Arthur (Skema Business School) Discussant: Arnold Marc (University of Saint Gallen - School of Finance) 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. Download paper The Impact of Renegotiable Debt on FirmsAuthors : Arnold Marc (University of Saint Gallen - School of Finance); Westermann Ramona (Copenhagen Business School)Intervenant: Arnold Marc (University of Saint Gallen - School of Finance) Discussant: Hong Jieying (ESSEC Business School) 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. Download paper |
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09:00 | Financial Econometrics / Mathematical Finance |
Financial Econometrics / Mathematical Finance (12/20/2018 at 09:00)Presiding : Yacine AIT-SAHALIA (Princeton University)The Cross-Sectional Distribution of Fund Skill MeasuresAuthors : Barras Laurent (McGill University - Desautels Faculty of Management); Gagliardini Patrick (University of Lugano); Scaillet O. (University of Geneva GSEM and GFRI)Intervenant: Barras Laurent (McGill University - Desautels Faculty of Management) Discussant: Le Fol Gaëlle (Université Paris Dauphine) 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. Download paper A Self-Exciting Model for Mutual Fund Flows: Investor Behaviour and Liability RiskAuthors : 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: Le Fol Gaëlle (Université Paris-Dauphine) Discussant: Geraci Marco Valerio (University of Cambridge - Cambridge-INET Institute) 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. Download paper Short Selling and Excess Return CorrelationAuthors : 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: Geraci Marco Valerio (University of Cambridge - Cambridge-INET Institute) Discussant: Barras Laurent (McGill University - Desautels Faculty of Management) 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. Download paper |
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09:00 | Behavioral Finance 1 |
Behavioral Finance 1 (12/20/2018 at 09:00)Presiding : Olivier DESSAINT (University of Toronto)The Impact of Recency Effects on Stock Market PricesAuthors : Mohrschladt Hannes (University of Muenster - Finance Center)Intervenant: Mohrschladt Hannes (University of Muenster - Finance Center) Discussant: Xu Guosong (WHU - Otto Beisheim School of Management) 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. Download paper Friends at WSJ: Journalist Connection, News Tone, and Stock ReturnsAuthors : Xu Guosong (WHU - Otto Beisheim School of Management)Intervenant: Xu Guosong (WHU - Otto Beisheim School of Management) Discussant: Loualiche Erik (University of Minnesota, Finance) 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. Download paper 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: Loualiche Erik (University of Minnesota, Finance) Discussant: Mohrschladt Hannes (University of Muenster - Finance Center) 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. Download paper |
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09:00 | Asset Pricing 1 |
Asset Pricing 1 (12/20/2018 at 09:00)Presiding : Andras FULOP (ESSEC Business School)Oil and Equity Return Predictability: The Importance of Dissecting Oil Price ChangesAuthors : Jiang Haibo (Tulane University); Skoulakis Georgios (University of British Columbia (UBC)) - Division of Finance); Xue Jinming (University of Maryland - Department of Finance)Intervenant: Skoulakis Georgios (University of British Columbia (UBC)) Discussant: Strauss Jack (University of Denver - Reiman School of Finance) 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. Download paper Beta Risk in the Cross-Section of EquitiesAuthors : 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: Fournier Mathieu (HEC Montreal) Discussant: Skoulakis Georgios (University of British Columbia (UBC) - Division of Finance) 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. Download paper Bitcoin: Learning, Predictability and Profitability via Technical AnalysisAuthors : 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: Strauss Jack (University of Denver - Reiman School of Finance) Discussant: Fournier Mathieu (HEC Montreal) 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 signicantly reduce the severity of drawdowns relative to a buyand- Download paper |
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09:00 | Market Microstructure 1 (BEDOFIH) |
Market Microstructure 1 (BEDOFIH) (12/20/2018 at 09:00)Presiding : Patrice FONTAINE (EUROFIDAI-CNRS)Dynamic Adverse Selection and LiquidityAuthors : Rosu Ioanid (HEC Paris (Groupe HEC) - Finance Department)Intervenant: Rosu Ioanid (HEC Paris (Groupe HEC) - Finance Department) Discussant: Chaieb Inès (University of Geneva and Swiss Finance Institute) 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. Download paper 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: Chaieb Ines (University of Geneva and Swiss Finance Institute) Discussant: Ligot Stéphanie (Université Paris I Panthéon-Sorbonne (PRISM Sorbonne and Labex REFi) 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. Download paper Fragmentation and price discovery dynamics: The contributions of Multilateral Trading Facilities and Regulated MarketAuthors : Gillet Roland L. (Université Paris I Panthéon-Sorbonne); Ligot Stéphanie (Université Paris I Panthéon-Sorbonne (PRISM Sorbonne and Labex RéFi))Intervenant: Ligot Stéphanie (Université Paris I Panthéon-Sorbonne (PRISM Sorbonne and Labex RéFi)) Discussant: Rosu Ioanid (HEC Paris (Groupe HEC) - Finance Department) Since 2007, the European Markets in Financial Instruments Directive (MiFID) has ended the national rule of order concentration and the directive has increased the fragmentation among the trading venues. This paper examines the price discovery dynamics for cross-listed CAC40 stocks, through the Information Shares metric, over the years 2012 and 2013 for three key places: NYSE Euronext Paris, BATS Europe and Chi-X Europe. We use the highfrequency order flow on individual stocks to study the monthly contribution of the Regulated Market (Euronext Paris) and Multilateral Trading Facilities (BATS and Chi-X Europe) to the price discovery by using the spread midpoint on the best limits at one-second intervals. We observe that the Multilateral trading facilities contribute significantly to the price discovery dynamics. The revision of MiFID should enhance the trade-through protections, and unified trade and price reporting protocols to avoid that fragmentation is detrimental on the market quality after the Brexit. Download paper |
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10:30 | COFFEE BREAK |
COFFEE BREAK (12/20/2018 at 10:30) |
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11:00 | Corporate Governance 1 |
Corporate Governance 1 (12/20/2018 at 11:00)Presiding : Adrien MATRAY (Princeton University)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: Shu Tao (University of Georgia - Department of Finance) Discussant: Kempf Elisabeth (University of Chicago - Booth School of Business) 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. Download paper Litigating Innovation: Evidence from Securities Class Action LawsuitsAuthors : Kempf Elisabeth (University of Chicago - Booth School of Business); Spalt Oliver G. (Tilburg University - Department of Finance)Intervenant: Kempf Elisabeth (University of Chicago - Booth School of Business) Discussant: De Cesari Amedeo (University of Manchester - Alliance Manchester Business School - Finance & Accounting Group) Low-quality securities class action lawsuits disproportionally target firms 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 firms. 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. Download paper Employment Protection and Share Repurchases: Evidence from Wrongful Discharge LawsAuthors : 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: De Cesari Amedeo (University of Manchester - Alliance Manchester Business School - Finance & Accounting Group) Discussant: Shu Tao (University of Georgia - Department of Finance)
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 imposed by WDLs leads to higher stock repurchases, and that this impact is concentrated among financially unconstrained and well governed firms. Our 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.
Download paper |
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11:00 | Banking / Systematic Risk (ACPR Chair) |
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 CCPsAuthors : Campbell Sean D. (U.S. Division of Monetary Affairs); Ivanov Ivan (Board of Governors of the Federal Reserve System)Intervenant: Ivanov Ivan (Board of Governors of the Federal Reserve System) Discussant: Garcia-Posada Miguel (Banco de Espagna) 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. Download paper Adapting Lending Policies When Negative Interest Rates Hit Banks' ProfitsAuthors : 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: Garcia-Posada Miguel (Banco de Espagna) Discussant: Ma Kebin (University of Warwick - Finance Group) 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. Download paper Contagious Bank Runs and Dealer of Last ResortAuthors : Li Zhao (University of International Business and Economics (UIBE) - School of Banking and Finance); Ma Kebin (University of Warwick - Finance Group)Intervenant: Ma Kebin (University of Warwick - Finance Group) Discussant: Ivanov Ivan (Board of Governors of the Federal Reserve System) 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. Download paper |
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11:00 | Asset Pricing 2 |
Asset Pricing 2 (12/20/2018 at 11:00)Presiding : Patrice PONCET (ESSEC Business School)Variance Premium, Downside Risk, and Expected Stock ReturnsAuthors : Feunou Bruno (Bank of Canada); Lopez Aliouchkin Ricardo (Syracuse University); Tédongap Roméo (ESSEC Business School); Xu Lai (Syracuse University)Intervenant: Lopez Aliouchkin Ricardo (Syracuse University) Discussant: Middelhoff T. Frederik (University of Muenster - Finance Center Muenster) 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%. Download paper Idiosyncratic Volatility, Its Expected Variation, and the Cross-Section of Stock ReturnsAuthors : 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: Middelhoff T. Frederik (University of Muenster - Finance Center Muenster) Discussant: Langlois Hugues (HEC Paris (Groupe HEC) - Finance Department) 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. Download paper Measuring Skewness PremiaAuthors : Langlois Hugues (HEC Paris (Groupe HEC) - Finance Department)Intervenant: Langlois Hugues (HEC Paris (Groupe HEC) - Finance Department) Discussant: Lopez Aliouchkin Ricardo (Syracuse University) 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. Download paper |
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11:00 | Banking / Financial Intermediation 1 |
Banking / Financial Intermediation 1 (12/20/2018 at 11:00)Presiding : Michael TROEGE (ESCP Europe)Can Risk be Shared Across Investor Cohorts? Evidence from a Popular Savings ProductAuthors : Hombert Johan (HEC Paris (Groupe HEC) - Finance Department); Lyonnet Victor (Ohio State University)Intervenant: Lyonnet Victor (Ohio State University) Discussant: Delatte Anne-Laure (CNRS) This paper shows how one of the largest sources of savings in Europe - life insurance investment products - shares market risk across investor cohorts. Insurers smooth returns by varying reserves in order to offset fluctuations in asset returns. Reserves are shared with new investors so changes in reserves imply changes in future returns, causing redistribution across cohorts. Using regulatory and survey data on the 1.4 trillion-euro French market, we estimate redistribution to be quantitatively large: 1.4% of savings value per year on average, i.e., 17 billion euros or 0.8% of GDP. Even though returns smoothing creates predictability, investor flows barely react to predictable returns. These findings challenge a large theoretical literature that assumes cross-cohort risk sharing is impossible. We provide evidence that investors' lack of sophistication explains the inelasticity of flows to predictable returns, sustaining the risk sharing mechanism. Download paper Connected Firms: The Propagation of Idiosyncratic Shocks in Borrowing NetworksAuthors : He Ai (Emory University, Goizueta Business School, Department of Finance)Intervenant: He Ai (Emory University, Goizueta Business School, Department of Finance) Discussant: Lyonnet Victor (Ohio State University) 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. Download paper Banks Defy GravityAuthors : 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: Delatte Anne-Laure (CNRS) Discussant: He Ai (Emory University, Goizueta Business School, Department of Finance) 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. Download paper |
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11:00 | International Finance |
International Finance (12/20/2018 at 11:00)Presiding : Jack STRAUSS (University of Denver)Model-Free International Stochastic Discount FactorsAuthors : Sandulescu Mirela (University of Lugano); Trojani Fabio (University of Geneva); Vedolin Andrea (Boston University - Department of Finance & Economics)Intervenant: Trojani Fabio (University of Geneva) Discussant: Camanho Nelson (Queen Mary University of London) 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. Download paper International Capital Markets with Time-Varying PreferencesAuthors : Curatola Giuliano (Goethe University Frankfurt - Research Center SAFE); Dergunov Ilya (Goethe University Frankfurt)Intervenant: Curatola Giuliano (Goethe University Frankfurt - Research Center SAFE) Discussant: Trojani Fabio (University of Geneva) 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. Download paper Global Portfolio Rebalancing and Exchange RatesAuthors : Camanho Nelson (Queen Mary University of London); Hau Harald (Geneva Finance Research Institute); Rey Hélène (London Business School)Intervenant: Camanho Nelson (Queen Mary University of London) Discussant: Curatola Giuliano (Goethe University Frankfurt - Research Center SAFE) 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. Download paper |
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11:00 | Portfolio Management 1 |
Portfolio Management 1 (12/20/2018 at 11:00)Presiding : Philippe BERTRAND (Aix-Marseille Université)Correcting Alpha Misattribution in Portfolio SortsAuthors : 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: Hoechle Daniel (FHNW School of Business - Institute for Finance) Discussant: Honkanen Pekka (HEC Paris) 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. Download paper Learning from Noise? Price and Liquidity Spillovers Around Mutual Fund Fire SalesAuthors : Honkanen Pekka (HEC Paris); Schmidt Daniel (HEC Paris (Groupe HEC) - Finance Department)Intervenant: Honkanen Pekka (HEC Paris) Discussant: Mougeot Nicolas (John Molson School of Business, Concordia University) 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. Download paper Monetary Policy and Equity ValuationAuthors : Mougeot Nicolas (John Molson School of Business, Concordia University)Intervenant: Mougeot Nicolas (John Molson School of Business, Concordia University) Discussant: Hoechle Daniel (FHNW School of Business - Institute for Finance) I use a general form of the Taylor rule to show the effect of monetary policies on equity valuation. If equity investors infer their long-term discount rate based upon guidance from the Fed using the Taylor rule, I show that when the sensitivity of Fed funds rates to inflation is greater than one, then earnongs yield should also display a positive relationship with inflation. This would provide a rational explanation to the empirically observed relationship between earnings yield and inflation. Equity investors therefore discount nominal cash flows at nominal discount rate, accounting for the Fed's policy response to inflation changes, refuting the Money Illusion Hypothesis of Modigliani and Cohn. An empirical analysis on US data over the 1915-2017 period confirms the proposition. Download paper |
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12:30 | LUNCH |
LUNCH (12/20/2018 at 12:30) |
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14:00 | Portfolio Management 2 (Amundi) |
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 (Federal Reserve Board of Governors)Intervenant: Ibert Markus (Federal Reserve Board of Governors) Discussant: Leippold Markus (University of Zurich - Department of Banking and Finance)
I collect a registry-based dataset on the personal portfolios of Swedish mutual fund managers. The managers who invest (a lot of) personal money in their own funds generate positive abnormal returns. Some managers are betting on their best ideas by investing personal money in individual securities that are simultaneously held by their funds. The majority do not invest in their funds nor in their funds’ constituents, and hold more cash and more passive funds in their personal portfolios. Overall, the results suggest that fund managers are highly certain about their ability - or more often lack thereof - and invest their personal wealth accordingly.
Download paper Is There Smart Money? How Information in the Futures Market Is Priced into the Cross-Section of Stock Returns with DelayAuthors : 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: Lauwers Alexandre R. (University of Geneva - Graduate Institute, Geneva (IHEID)) Discussant: Zaldokas Alminas (Hong Kong University of Science & Technology (HKUST) - Department of Finance) 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. Download paper Is Active Investing a Zero-Sum Game?Authors : Leippold Markus (University of Zurich - Department of Banking and Finance); Rüegg Roger (University of Zurich - Department of Banking and Finance)Intervenant: Leippold Markus (University of Zurich - Department of Banking and Finance) Discussant: Lauwers Alexandre R. (University of Geneva - Graduate Institute, Geneva (IHEID)) To study the hypothesis whether active investing is a zero-sum game, we analyze the alpha of active and index mutual funds from a global sample of more than 60,000 equity and fixed income funds. Using a new robust statistical test, we cannot reject this hypothesis for the vast majority of investment categories. We also find that the average active fund has less exposure to traditional risk factors, but higher sensitivity to alternative risk premia. Fund persistence and the impact of size and fees adds further support to the hypothesis. Download paper Background Noise? TV Advertising Affects Real Time Investor BehaviorAuthors : Zaldokas Alminas (Hong Kong University of Science & Technology (HKUST) - Department of Finance); Liaukonyte Jura (Cornell University)Intervenant: Zaldokas Alminas (Hong Kong University of Science & Technology (HKUST) - Department of Finance) Discussant: Ibert Markus (Federal Reserve Board of Governors) Using minute-by-minute television advertising data covering approximately 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 nancial information. Our identication strategy exploits the fact that viewers in different U.S. time zones are exposed to the same programming and national advertising at different times, allowing us to control for contemporaneous confounding events. We nd that an average TV ad leads to a 3% increase in SEC EDGAR queries within 15 minutes of the airing of that ad. These ad-induced queries are linked to higher stock trading volume on the following trading day. 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 nancial information searches on closest rivals and suppliers. Download paper |
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14:00 | Market Microstructure 2 (BEDOFIH) |
Market Microstructure 2 (BEDOFIH) (12/20/2018 at 14:00)Presiding : Sonia JIMENEZ (Université Grenoble INP)OTC DiscountAuthors : 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: Moench Emanuel (Deutsche Bundesbank) Discussant: Lee Tomy (Central European University) This paper studies price dispersion and venue choice in the market for German Bunds, the second most liquid sovereign bond market in the world, where exchange platforms with a central limit order book and over-the-counter (OTC) segments coexist for interdealer transactions. We focus on the dealer-to-dealer segment of the market and show that the price differences between the OTC and exchange segments are significant. For the majority of trades the OTC price is favorable with respect to the corresponding quoted price on the exchange, indicating the presence of an OTC discount. The size of the OTC discount depends on dealers’ search costs and trading relationships. Dealers are more likely to execute a trade on the exchange when the required immediacy is high or when search costs are high. Our findings highlight the complementary roles played by exchange and OTC segments with important implications for the design and regulation of fixed-income trading. Download paper Electronic Trading in OTC Markets vs. Centralized ExchangeAuthors : 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: Vogel Sebastian (Ecole Polytechnique Fédérale de Lausanne) Discussant: Ergun Lerby Murat (London School of Economics & Political Science (LSE)) 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. Download paper Why Trade Over-the-Counter? When Investors Want Price DiscriminationAuthors : Lee Tomy (Central European University); Wang Chaojun (University of Pennsylvania - The Wharton School)Intervenant: Lee Tomy (Central European University) Discussant: Vogel Sebastian (Ecole Polytechnique Fédérale de Lausanne) 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. Download paper The Informational Value of Consensus Prices: Evidence from the OTC Derivatives MarketAuthors : Ergun Lerby Murat (London School of Economics & Political Science (LSE)); Uthemann Andreas (London School of Economics & Political Science (LSE))Intervenant: Ergun Lerby Murat (London School of Economics & Political Science (LSE)) Discussant: Moench Emanuel (Deutsche Bundesbank) 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. Download paper |
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14:00 | Asset Pricing 3 |
Asset Pricing 3 (12/20/2018 at 14:00)Presiding : Franck MORAUX (Université de Rennes 1)Capital Heterogeneity, Time-to-Build, and Return PredictabilityAuthors : Luo Ding (City University of Hong Kong)Intervenant: Luo Ding (City University of Hong Kong) Discussant: Li Tong (University of Hong Kong) I study how the two major types of business investment, equipment investment and structures investment, are differently linked to stock returns. I empirically show that equipment investment has a significantly stronger predictive power for stock returns than structures investment, 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 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 uncovered from planned investment. Download paper Bank Loan Undrawn Spreads and the Predictability of Stock ReturnsAuthors : 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: Li Tong (The University of Hong Kong) Discussant: Li Ye (Ohio State University) 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. Download paper Rediscover Predictability: Information from the Relative Prices of Long-Term and Short-Term DividendsAuthors : Li Ye (Ohio State University); Wang Chen (Yale School of Management)Intervenant: Li Ye (Ohio State University) Discussant: Hiraki Kazuhiro (Queen Mary, University of London, School of Economics and Finance) 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. Download paper The Contribution of Frictions to Expected ReturnsAuthors : 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: Hiraki Kazuhiro (Queen Mary, University of London, School of Economics and Finance) Discussant: Luo Ding (City University of Hong Kong) We derive a model-free option-based formula to estimate the contribution of market frictions to expected returns (CFER) within an asset pricing setting. We estimate CFER for the U.S. optionable stocks. We document that CFER is sizable, it predicts stock returns and it subsumes the effect of frictions on expected returns as expected theoretically. The sizable alpha of a long-short portfolio formed on CFER is consistent with the size of market frictions and it is not due to model mis-specification. Moreover, we show that various option-implied measures proxy CFER, thus providing a theoretical explanation for their ability to predict stock returns. Download paper |
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14:00 | Banking / Financial Intermediation 2 |
Banking / Financial Intermediation 2 (12/20/2018 at 14:00)Presiding : Joël PETEY (Strasbourg University)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: Vallée Boris (Harvard Business School - Finance Unit) Discussant: Celerier Claire (University of Toronto - Rotman School of Management) 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. Download paper Lending Technologies and Lending RelationshipsAuthors : Karapetyan Artashes (ESSEC Business School); Stacescu Bogdan (BI Norwegian Business School)Intervenant: Stacescu Bogdan (BI Norwegian Business School) Discussant: Vallée Boris (Harvard Business School - Finance Unit) 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. Download paper Taxing Bank Leverage: The Effects on Bank Capital Structure, Credit Supply and Risk-TakingAuthors : 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: Celerier Claire (University of Toronto - Rotman School of Management) Discussant: Stacescu Bogdan (BI Norwegian Business School) 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. Download paper |
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14:00 | Corporate Finance |
Corporate Finance (12/20/2018 at 14:00)Presiding : Eric de BODT (Université de Lille 2)Shadow Pills and Long-Term Firm ValueAuthors : 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: Guernsey Scott B. (University of Cambridge) Discussant: Wang Renjie (Erasmus University Rotterdam (EUR), Erasmus School of Economics (ESE)) 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 that validated 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, higher dimensional fixed effects and portfolio analysis, and support the bonding hypothesis of takeover defenses. Download paper Noise from Other Industries: Overgeneralization and Analyst BeliefAuthors : Wang Renjie (Erasmus University Rotterdam (EUR), Erasmus School of Economics (ESE))Intervenant: Wang Renjie (Erasmus University Rotterdam (EUR), Erasmus School of Economics (ESE)) Discussant: Isakov Dusan (University of Fribourg (Switzerland) - Faculty of Economics and Social Science) How do analysts form earnings expectations? This paper documents that analysts’ beliefs are influenced by the recent performance of other industries that they cover. I show that negative shocks to one coverage industry lead analysts to make more pessimistic earnings forecasts for firms in another industry. Those pessimistic forecasts are less accurate and lower than the actual earnings. Analysts are affected even if the focal firms have no relationship with the shocked industry. These findings are consistent with the notion that analysts heuristically overgeneralize other industries’ performance and incorrectly lower their expectations based on noise rather than information. Moreover, I demonstrate that analyst overgeneralization has significant effects on financial markets: the resulting increase in analyst disagreement induces higher trading volumes and larger return volatilities, and the resulting analysts’ pessimism leads to temporary underpricing. Download paper Labor Market Competitor Network and the Transmission of ShocksAuthors : Liu Yukun (Yale University, Department of Economics); Wu Xi (New York University (NYU) - Leonard N. Stern School of Business)Intervenant: Liu Yukun (Yale University, Department of Economics) Discussant: Guernsey Scott B. (University of Cambridge) 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. Download paper What If Dividends Were Tax-Exempt? Evidence from a Natural ExperimentAuthors : 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: Isakov Dusan (University of Fribourg (Switzerland) - Faculty of Economics and Social Science) Discussant: Liu Yukun (Yale University, Department of Economics)
We study the effect of dividend taxes on the payout and investment policy of listed firms and discuss their implications for agency problems. To do so, we exploit a unique setting in Switzerland where some, but not all, firms were suddenly able to pay tax-exempted dividends to their shareholders following the corporate tax reform of 2011. Using a difference-indifferences specification, we show that treated firms increased their payout much more than control firms after the tax cut. Differently, treated firms did not concurrently or subsequently increase investment. We show that the tax-inelasticity of investment was due to a significant
drop in retained earnings ̶ as the rise in dividends was not compensated by an equally-sized reduction in share repurchases. Furthermore, treated firms did not raise more equity and/or did not reduce their cash holdings to compensate for the contraction in retained earnings. Finally, we show that an unintended consequence of cutting dividend taxes is to mitigate the agency problems that arise between insiders and minority hareholders.
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16:00 | COFFEE BREAK |
COFFEE BREAK (12/20/2018 at 16:00) |
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16:30 | Entrepreneurial Finance (Ardian) |
Entrepreneurial Finance (Ardian) (12/20/2018 at 16:30)Presiding : Jean-François GAJEWSKI (Université de Lyon)Mind the Gap: Gender Stereotypes and Entrepreneur FinancingAuthors : Hébert Camille (Université Paris-Dauphine & Tilburg University)Intervenant: Hébert Camille (Université Paris-Dauphine & Tilburg University) Discussant: Matray Adrien (Princeton University) Using administrative data on the population of start-ups in France and their financing sources, I provide evidence consistent with the existence of stereotypes among equity investors. First, I find that female-founded start-ups are 25-35% less likely to raise external equity including venture capital. However, in female-dominated sectors, female-founded start-ups are no longer at a disadvantage. They are equally to more likely to be backed with equity relative to male-founded start-ups in those sectors and to female-founded start-ups in male-dominated sectors. My empirical design ensures that the observed gender funding gaps are not driven by the composition of founding teams or by differences across individuals regarding ex ante motivations, optimism, or initial corporate performance. Second, consistent with the idea that the bar is set higher for minorities, I find that conditionally on being backed with equity, female entrepreneurs perform better in male-dominated sectors relative to female-dominated sectors. The evidence is consistent with a model in which investors have context-dependent stereotypes. Download paper The Long-Term Consequences of the Tech Bubble on Skilled Workers' EarningsAuthors : Hombert Johan (HEC Paris (Groupe HEC) - Finance Department); Matray Adrien (Princeton University)Intervenant: Matray Adrien (Princeton University) Discussant: Lovo Stefano (HEC Paris (Groupe HEC) - Finance Department) 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. Download paper Herding in Equity CrowdfundingAuthors : 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: Lovo Stefano (HEC Paris (Groupe HEC) - Finance Department) Discussant: Hébert Camille (Université Paris-Dauphine & Tilburg University) Do equity crowdfunding investors herd? We build a model where informed and uninformed investors arrive sequentially and choose whether and how much to invest. We test the model using data of investments on a leading European equity crowdfunding platform. We show theoretically and find empirically that the size and likelihood of a pledge is affected positively by the size of the most recent pledges, and negatively by the time elapsed since the most recent pledge. The empirical analysis is inconsistent with naïve herding, independent investments, or exogenously correlated investments. Download paper |
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16:30 | Corporate Governance 2 |
Corporate Governance 2 (12/20/2018 at 16:30)Presiding : Elisabeth KEMPF (University of Chicago)The Origins and Real Effects of the Gender Gap: Evidence from CEOs' Formative YearsAuthors : 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: Sosyura Denis (Arizona State University) Discussant: Bates Thomas W. (Arizona State University - Department of Finance) 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. Download paper Performance-Based Turnover on Corporate BoardsAuthors : Bates Thomas W. (Arizona State University - Department of Finance); Becher David A. (Drexel University); Wilson Jared I. (Indiana University - Kelley School of Business)Intervenant: Bates Thomas W. (Arizona State University - Department of Finance) Discussant: Laguna Marie-Aude (Université Paris Dauphine) 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. Download paper Are Investors Aware of Ownership Connections?Authors : Ginglinger Edith (Université Paris Dauphine); Hébert Camille (Université Paris-Dauphine & Tilburg University); Renneboog Luc (Tilburg University - Department of Finance)Intervenant: Ginglinger Edith (Université Paris Dauphine) Discussant: Sosyura Denis (Arizona State University) 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. Download paper |
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16:30 | Market Microstructure 3 (BEDOFIH) |
Market Microstructure 3 (BEDOFIH) (12/20/2018 at 16:30)Presiding : Sabrina BUTI (Université Paris-Dauphine)Demand for Information, Macroeconomic Uncertainty, and the Response of U.S. Treasury Securities to NewsAuthors : 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: Benamar Hedi (Board of Governors of the Federal Reserve System) Discussant: Bellia Mario (Goethe University Frankfurt - Research Center SAFE) 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. Download paper 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: Bellia Mario (Goethe University Frankfurt - Research Center SAFE) Discussant: Fattinger Felix (The University of Melbourne - Department of Finance) 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. Download paper Trading Complex RisksAuthors : Fattinger Felix (The University of Melbourne - Department of Finance)Intervenant: Fattinger Felix (The University of Melbourne - Department of Finance) Discussant: Benamar Hedi (Board of Governors of the Federal Reserve System) 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. Download paper |
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16:30 | Banking / Financial Intermediation 3 |
Banking / Financial Intermediation 3 (12/20/2018 at 16:30)Presiding : Boris VALLEE (Harvard Business School)Deposit Windfalls and Bank Reporting Quality: Evidence from Shale BoomsAuthors : Wu Xi (New York University (NYU) - Leonard N. Stern School of Business)Intervenant: Wu Xi (New York University (NYU) - Leonard N. Stern School of Business) Discussant: Bouvard Matthieu (McGill University - Desautels Faculty of Management) 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. Download paper Operating Leverage, Risk Taking and Coordination FailuresAuthors : Bouvard Matthieu (McGill University - Desautels Faculty of Management); De Motta Adolfo (McGill University - Desautels Faculty of Management)Intervenant: Bouvard Matthieu (McGill University - Desautels Faculty of Management) Discussant: Girotti Mattia (Banque de France) 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. Download paper External Credit Ratings and Bank LendingAuthors : Cahn Christophe (Banque de France - Direction des Entreprises); Girotti Mattia (Banque de France); Salvade Federica (PSB Paris School of Business)Intervenant: Girotti Mattia (Banque de France) Discussant: Wu Xi (New York University (NYU) - Leonard N. Stern School of Business)
We study how external, not-for-profit, credit ratings influence banks’ lending decisions and firms’ real outcomes. We exploit a refinement in this rating information, which makes some firms receive a rating surprise. Although this surprise does not alter firms’ risk weights in banks’ required capital calculation, we find that affected firms enjoy greater and cheaper access to bank credit, start new bank relationships more easily, and invest more. Banks react to the rating surprise more strongly the less they already have information on the borrower. Overall, this suggests that banks use credit ratings for their informational content. Consequently, ratings help reducing the information gap between them.
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16:30 | Asset Pricing 4 |
Asset Pricing 4 (12/20/2018 at 16:30)Presiding : Abraham LIOUI (EDHEC)Crash Risk in Individual StocksAuthors : Pederzoli Paola (University of Houston)Intervenant: Pederzoli Paola (University of Houston) Discussant: Renne Jean-Paul (University of Lausanne - School of Economics and Business Administration (HEC-Lausanne)) 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. Download paper Disastrous DefaultsAuthors : 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: Renne Jean-Paul (University of Lausanne - School of Economics and Business Administration (HEC-Lausanne)) Discussant: Ouzan Samuel (Neoma Business School) 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. Download paper System 1, System 2, and Speculative TradingAuthors : Boyer M. Martin (HEC Montreal - Department of Finance); Ouzan Samuel (Neoma Business School)Intervenant: Ouzan Samuel (Neoma Business School) Discussant: Pederzoli Paola (University of Houston) 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. Download paper |
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16:30 | Interest Rates |
Interest Rates (12/20/2018 at 16:30)Presiding : Yannick MALEVERGNE (Université Paris I Panthéon Sorbonne)Macro Risks and the Term Structure of Interest RatesAuthors : 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: Ermolov Andrey (Gabelli School of Business, Fordham University) Discussant: Pancost N. Aaron (University of Texas at Austin McCombs School of Business) 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. Download paper Special Repo Rates and the Cross-Section of Bond PricesAuthors : D'Amico Stefania (Federal Reserve Bank of Chicago); Pancost N. Aaron (University of Texas at Austin McCombs School of Business)Intervenant: Pancost N. Aaron (University of Texas at Austin McCombs School of Business); Discussant: Zimmermann Paul (Catholic University of Lille - IESEG School of Management, Lille Campus) 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. Download paper Is Normal Backwardation Normal? Valuing Financial Futures with a Stochastic, Endogenous Index-Rate CovarianceAuthors : Raimbourg Philippe (Université Paris I Panthéon-Sorbonne); Zimmermann Paul (Catholic University of Lille - IESEG School of Management, Lille Campus)Intervenant: Zimmermann Paul (Catholic University of Lille - IESEG School of Management, Lille Campus) Discussant: Ermolov Andrey (Gabelli School of Business, Fordham University) 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. Download paper |
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18:00 | COCKTAIL & BEST PAPER AWARD |
COCKTAIL & BEST PAPER AWARD (12/20/2018 at 18:00) |
- Arce Oscar (Banco de Espagna)
- Arnold Marc (University of Saint Gallen - School of Finance)
- Astebro Thomas B. (HEC Paris - Economics and Decision Sciences)
- Barras Laurent (McGill University - Desautels Faculty of Management)
- Bates Thomas W. (Arizona State University - Department of Finance)
- Becher David A. (Drexel University)
- Bekaert Geert (Columbia Business School - Finance and Economics)
- Bellia Mario (Goethe University Frankfurt - Research Center SAFE)
- Benamar Hedi (Board of Governors of the Federal Reserve System)
- Boloorforoosh Ali (Concordia University)
- Bouvard Matthieu (McGill University - Desautels Faculty of Management)
- Bouvatier Vincent (Université Paris Ouest - Nanterre, La Défense)
- Boyer M. Martin (HEC Montreal - Department of Finance)
- Branger Nicole (University of Muenster - Finance Center Muenster)
- Cahn Christophe (Banque de France - Direction des Entreprises)
- Camanho Nelson (Queen Mary University of London)
- Campbell Sean D. (U.S. Division of Monetary Affairs)
- Capelle-Blancard Gunther (University of Paris 1 Pantheon-Sorbonne - Centre d'Economie de la Sorbonne (CES))
- Celerier Claire (University of Toronto - Rotman School of Management)
- Chaieb Ines (University of Geneva and Swiss Finance Institute)
- Christensen Kim (University of Aarhus - CREATES)
- Christoffersen Peter (University of Toronto - Rotman School of Management)
- Cremers Martijn (University of Notre Dame)
- Curatola Giuliano (Goethe University Frankfurt - Research Center SAFE)
- D'Amico Stefania (Federal Reserve Bank of Chicago)
- Dang Viet Anh (Alliance Manchester Business School)
- Darolles Serge (Paris Dauphine University - DRM-CEREG)
- De Cesari Amedeo (University of Manchester - Alliance Manchester Business School - Finance & Accounting Group)
- De Motta Adolfo (McGill University - Desautels Faculty of Management)
- Delatte Anne-Laure (CNRS)
- Dergunov Ilya (Goethe University Frankfurt)
- Detzel Andrew L. (University of Denver - Daniels College of Business)
- Di Giuli Alberta (ESCP Europe - Department of Finance)
- Duchin Ran (University of Washington - Michael G. Foster School of Business)
- Engstrom Eric (U.S. Board of Governors of the Federal Reserve System - Division of Research and Statistics, Capital Markets)
- Ergun Lerby Murat (London School of Economics & Political Science (LSE))
- Ermolov Andrey (Gabelli School of Business, Fordham University)
- Errunza Vihang R. (McGill University - Desautels Faculty of Management)
- Fattinger Felix (The University of Melbourne - Department of Finance)
- Fernandez Sierra Manuel (University of Essex)
- Feunou Bruno (Bank of Canada)
- Foucault Thierry (HEC Paris (Groupe HEC) - Finance Department)
- Fournier Mathieu (HEC Montreal)
- Gagliardini Patrick (University of Lugano)
- Garcia-Posada Miguel (Banco de Espagna)
- Geraci Marco Valerio (University of Cambridge - Cambridge-INET Institute)
- Gillet Roland L. (Université Paris I Panthéon-Sorbonne)
- Ginglinger Edith (Université Paris Dauphine)
- Girotti Mattia (Banque de France)
- Gnabo Jean-Yves (Facultés Universitaires Notre-Dame de la Paix (FUNDP))
- Gourieroux Christian (University of Toronto - Department of Economics)
- Griffin John M. (University of Texas at Austin - Department of Finance)
- Gu Lifeng (The University of Hong Kong)
- Guernsey Scott B. (University of Cambridge)
- Haddad Valentin (University of California, Los Angeles (UCLA) - Anderson School of Management)
- Hau Harald (Geneva Finance Research Institute)
- He Ai (Emory University, Goizueta Business School, Department of Finance)
- Hiraki Kazuhiro (Queen Mary, University of London, School of Economics and Finance)
- Ho Paul (Princeton University - Department of Economics)
- Ho Steven Wei (Columbia University, Graduate School of Arts and Sciences, Department of Economics)
- Hoechle Daniel (FHNW School of Business - Institute for Finance)
- Hombert Johan (HEC Paris (Groupe HEC) - Finance Department)
- Hong Jieying (ESSEC Business School)
- Honkanen Pekka (HEC Paris)
- Hébert Camille (Université Paris-Dauphine & Tilburg University)
- Hülsbusch Hendrik (University of Muenster - Finance Center Muenster)
- Ibert Markus (Federal Reserve Board of Governors)
- Isakov Dusan (University of Fribourg (Switzerland) - Faculty of Economics and Social Science)
- Ivanov Ivan (Board of Governors of the Federal Reserve System)
- Jiang Haibo (Tulane University)
- Karapetyan Artashes (ESSEC Business School)
- Kempf Elisabeth (University of Chicago - Booth School of Business)
- Kick Thomas K. (Deutsche Bundesbank)
- Kolokolov Alexey (Goethe University Frankfurt - Research Center SAFE)
- Langlois Hugues (HEC Paris (Groupe HEC) - Finance Department)
- Lauwers Alexandre R. (University of Geneva - Graduate Institute, Geneva (IHEID))
- Le Fol Gaëlle (Université Paris-Dauphine)
- Lee Tomy (Central European University)
- Leippold Markus (University of Zurich - Department of Banking and Finance)
- Li Tong (The University of Hong Kong)
- Li Ye (Ohio State University)
- Li Zhao (University of International Business and Economics (UIBE) - School of Banking and Finance)
- Liaukonyte Jura (Cornell University)
- Ligot Stéphanie (Université Paris I Panthéon-Sorbonne (PRISM Sorbonne and Labex RéFi))
- Litov Lubomir P. (University of Oklahoma - Michael F. Price College of Business)
- Liu Clark (Tsinghua University - PBC School of Finance)
- Liu Hong (Washington University in St. Louis - Olin Business School)
- Liu Ying (University of Lausanne - Institute of Banking and Finance (IBF))
- Liu Yukun (Yale University, Department of Economics)
- Lopez Aliouchkin Ricardo (Syracuse University)
- Loualiche Erik (University of Minnesota, Finance)
- Lovo Stefano (HEC Paris (Groupe HEC) - Finance Department)
- Lu Yang (University of Paris 13)
- Luo Ding (City University of Hong Kong)
- Lyonnet Victor (Ohio State University)
- Ma Kebin (University of Warwick - Finance Group)
- Matray Adrien (Princeton University)
- Mayordomo Sergio (Banco de Espagna)
- Middelhoff T. Frederik (University of Muenster - Finance Center Muenster)
- Moench Emanuel (Deutsche Bundesbank)
- Mohrschladt Hannes (University of Muenster - Finance Center)
- Monfort Alain (National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST))
- Mouabbi Sarah (Banque de France)
- Mougeot Nicolas (John Molson School of Business, Concordia University)
- Ongena Steven (University of Zurich - Department of Banking and Finance)
- Ouzan Samuel (Neoma Business School)
- Pancost N. Aaron (University of Texas at Austin McCombs School of Business)
- Pederzoli Paola (University of Houston)
- Pelizzon Loriana (Goethe University Frankfurt - Faculty of Economics and Business Administration)
- Perignon Christophe (HEC Paris (Groupe HEC) - Finance Department)
- Petit-Romec Arthur (Skema Business School)
- Phan Hieu V. (University of Massachusetts Lowell)
- Raimbourg Philippe (Université Paris I Panthéon-Sorbonne)
- Renne Jean-Paul (University of Lausanne - School of Economics and Business Administration (HEC-Lausanne))
- Renneboog Luc (Tilburg University - Department of Finance)
- Reno Roberto (Department of Economics, University of Verona)
- Rey Hélène (London Business School)
- Rosu Ioanid (HEC Paris (Groupe HEC) - Finance Department)
- Rüegg Roger (University of Zurich - Department of Banking and Finance)
- Salvade Federica (PSB Paris School of Business)
- Sandulescu Mirela (University of Lugano)
- Scaillet O. (University of Geneva GSEM and GFRI)
- Schmid Markus (University of Saint Gallen - Swiss Institute of Banking and Finance)
- Schmidt Daniel (HEC Paris (Groupe HEC) - Finance Department)
- Schneider Michael (Deutsche Bundesbank)
- Sepe Simone M. (University of Arizona - James E. Rogers College of Law)
- Shu Tao (University of Georgia - Department of Finance)
- Simutin Mikhail (University of Toronto - Rotman School of Management)
- Skiadopoulos George S. (Queen Mary, University of London, School of Economics and Finance)
- Skoulakis Georgios (University of British Columbia (UBC)) - Division of Finance)
- Sosyura Denis (Arizona State University)
- Spalt Oliver G. (Tilburg University - Department of Finance)
- Stacescu Bogdan (BI Norwegian Business School)
- Strauss Jack (University of Denver - Reiman School of Finance)
- Sun Theo Ran (Université Paris-Dauphine, PSL Research University)
- Trojani Fabio (University of Geneva)
- Tédongap Roméo (ESSEC Business School)
- Uthemann Andreas (London School of Economics & Political Science (LSE))
- Vallée Boris (Harvard Business School - Finance Unit)
- Vedolin Andrea (Boston University - Department of Finance & Economics)
- Vega Clara (Board of Governors of the Federal Reserve System)
- Veredas David (Vlerick Business School)
- Vogel Sebastian (Ecole Polytechnique Fédérale de Lausanne)
- Vulkan Nir (University of Oxford - Said Business School)
- Wang Chaojun (University of Pennsylvania - The Wharton School)
- Wang Chen (Yale School of Management)
- Wang Renjie (Erasmus University Rotterdam (EUR), Erasmus School of Economics (ESE))
- Weisskopf Jean-Philippe (Ecole Hôtelière de Lausanne)
- Westermann Ramona (Copenhagen Business School)
- Wilson Jared I. (Indiana University - Kelley School of Business)
- Wu Xi (New York University (NYU) - Leonard N. Stern School of Business)
- Xu Guosong (WHU - Otto Beisheim School of Management)
- Xu Lai (Syracuse University)
- Xue Jinming (University of Maryland - Department of Finance)
- Zaldokas Alminas (Hong Kong University of Science & Technology (HKUST) - Department of Finance)
- Zeng Yao (University of Washington - Michael G. Foster School of Business)
- Zhang Yuan (Ecole Polytechnique Fédérale de Lausanne)
- Zhou Guofu (Washington University in St. Louis - John M. Olin Business School)
- Zimmermann Heinz (University of Basel - Center for Economic Science (WWZ) - Department of Finance)
- Zimmermann Paul (Catholic University of Lille - IESEG School of Management, Lille Campus)
- de Roure Calebe (Reserve Bank of Australia)
Awards
- 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".
- 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"
- 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"
Registrations
Registrations are closed - DEADLINE DECEMBER 17th morning
For any question you can contact the organizing committee : conference2018@paris-december.eu
Information
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.
Location
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 : conference2018@paris-december.eu.
(Deadline November 19, 2018)
Access
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"