Articles

Bank Interest Rate Risk Management

G. VUILLEMEY

Management Science

A paraître

Départements : Finance, GREGHEC (CNRS)

Mots clés : Interest rate risk; Derivatives; Bank capital structure; Hedging


Empirically, bank equity value is decreasing in the interest rate. Yet (i) manybanks do not hedge interest rate risk and (ii) above 50% of hedging banks usederivatives to increase exposure. I model a bank’s capital structure, and showthat these facts are consistent with optimal hedging under financial frictions.Novel predictions on the characteristics of banks taking long or short interest ratederivative positions are tested, and supported by the data. Therefore, banks’derivatives exposures are not necessarily evidence of excessive risk-taking, andcan be explained by hedging in the presence of frictions. More broadly, theresults challenge the view that “hedging” and “speculative” positions can beidentified using the comovement between derivatives payoffs and equity value

Banking Deregulation and The Rise in House Price Comovement

A. LANDIER, D. SRAER, D. THESMAR

Journal of Financial Economics

A paraître

Départements : Finance

Mots clés : Financial Integration, Comovement, House Prices

http://faculty.haas.berkeley.edu/dsraer/correlation_final.pdf


The correlation across US states in house price growth increased steadily between 1976 and 2000. This paper shows that the contemporaneous geographic integration of the US banking market, via the emergence of large banks, was a primary driver of this phenomenon. To this end, we first theoretically derive an appropriate measure of banking integration across state pairs and document that house price growth correlation is strongly related to this measure of financial integration. Our IV estimates suggest that banking integration can explain up to one fourth of the rise in house price correlation over this period

Can Innovation Help U.S. Manufacturing Firms Escape Import Competition from China?

J. HOMBERT, A. MATRAY

The Journal of Finance

A paraître

Départements : Finance, GREGHEC (CNRS)


We study whether R&D-intensive firms are more resilient to trade shocks. Wecorrect for the endogeneity of R&D using tax-induced changes to R&D cost. While rising imports from China lead to slower sales growth and lower profitability, these effects are significantly smaller for firms with a larger stock of R&D (by about half when moving from the bottom quartile to the top quartile of R&D). We provide evidence that this effect is explained R&D allowing firms to increase product differentiation. As a result, while firms in import-competing industries cut capital expenditures and employment, R&D-intensive firms downsize considerably less

Corporate Strategy, Conformism, and the Stock Market

T. FOUCAULT, L. FRESARD

Review of Financial Studies

A paraître

Départements : Finance, GREGHEC (CNRS)


Data abundance and asset price informativeness

T. FOUCAULT, J. DUGAST

Journal of Financial Economics

A paraître

Départements : Finance, GREGHEC (CNRS)

Mots clés : Asset Price Informativeness, Big Data, FinTech, Information Processing, Markets for Information, Contrarian and momentum trading

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398904


Information processing filters out the noise in data but it takes time. Hence, low precision signals are available before high precision signals. We analyze how this feature affects asset price informativeness when investors can acquire signals of increasing precision over time about the payoff of an asset. As the cost of low precision signals declines, prices are more likely to reflect these signals before more precise signals become available. This effect can ultimately reduce price informativeness because it reduces the demand for more precise signals (e.g., fundamental analysis). We make additional predictions for trade and price patterns

Distracted Institutional Investors

D. SCHMIDT

Journal of Financial and Quantitative Analysis

A paraître

Départements : Finance

Mots clés : Inattention, Institutional Investors, Trading Behavior

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2789001


We investigate how distraction affects the trading behavior of professional asset managers. Exploring detailed transaction-level data, we show that managers with a large fraction of portfolio stocks exhibiting an earnings announcement are significantly less likely to trade in other stocks, suggesting that these announcements absorb attention which is missing for the choice of which stocks to trade. Hence, attention constraints can be binding even among this elite group of traders. Finally, we identify two channels through which distraction hurts managers’ performance: distracted managers fail to close losing positions, partly explained by these managers displaying a stronger disposition effect, and incur slightly higher transaction costs

Financing Investment: The Choice between Bonds and Bank Loans

E. MORELLEC, P. VALTA

Management Science

A paraître

Départements : Finance

Mots clés : Debt structure, Capital structure, Investment, Credit supply, Competition,

http://dx.doi.org/10.2139/ssrn.2162896


We build a model of investment and financing decisions to study the choice between bonds and bank loans in a firm's marginal financing decision and its effects on corporate investment. We show that firms with more growth options, higher bargaining power in default, operating in more competitive product markets, and facing lower credit supply are more likely to issue bonds. We also demonstrate that, by changing the cost of financing, these characteristics affect the timing of investment. We test these predictions using a sample of U.S. firms and present new evidence that supports our theory

How Much Do Means Tested Benefits Reduce the Demand for Annuities?

Monika BUTLER, K. PEIJNENBURG, Stefan STAUBLI

Journal of Pension Economics and Finance

A paraître

Départements : Finance, GREGHEC (CNRS)

Mots clés : Means-Tested Benefits, Occupational Pension, Annuity


We analyze the effect of means-tested benefits on annuitization decisions using an administrative dataset of pension wealth cash-out choices. Availability of means-tested payments creates an incentive to cash out pension wealth for low and middle income earners, instead of taking the annuity. Agents trade off the advantages from annuitization, receiving longevity risk insurance, to the disadvantages, giving up “free” wealth in the form of means-tested supplemental income. Our life-cycle model demonstrates that the availability of means-tested benefits substantially reduces the desire to annuitize especially for low and intermediate levels of pension wealth. In our empirical analysis we show that the model’s predicted fraction of retirees choosing the annuity is able to match the annuitization pattern of occupational pension wealth observed in Switzerland

Life-Cycle Asset Allocation with Ambiguity Aversion and Learning

K. PEIJNENBURG

Journal of Financial and Quantitative Analysis

A paraître

Départements : Finance, GREGHEC (CNRS)


Marking to Market and Inefficient Investment Decisions

C. OTTO, P. F. VOLPIN

Management Science

A paraître

Départements : Finance

Mots clés : Marking to Market, Investment Decisions, Reputation, Agency Problem

https://pubsonline.informs.org/doi/pdf/10.1287/mnsc.2016.2696


We examine how mark-to-market accounting affects the investment decisions of managers with reputation concerns. Reporting the current market value of a firm's assets can help mitigate agency problems because it provides outsiders (e.g., shareholders) with new information against which the management's decisions can be evaluated. However, the fact that the assets' market value is informative can also have a negative side effect: Managers may shy away from investments that indicate conflicting private information and would damage their reputation. This effect can lead to inefficient investment decisions and make marking to market less desirable when market prices are more informative


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