Art and Money

W. Goetzmann, L. Renneboog, C. SPAENJERS

American Economic Review

mai 2011, vol. 101, n°3, pp.222-226

Départements : Finance, GREGHEC (CNRS)

This paper investigates the impact of equity markets and top incomes on art prices. Using a newly constructed art market index, we demonstrate that equity market returns have had a significant impact on the price level in the art market over the last two centuries. We also find evidence that an increase in income inequality may lead to higher prices for art. Finally, the results of Johansen's cointegration tests strongly suggest the existence of a long-run relation between top incomes and art prices

Belief-free equilibria in games with incomplete information: characterization and existence

J. Hörner, S. LOVO, T. TOMALA

Journal of Economic Theory

septembre 2011, vol. 146, n°5, pp.1770-1795

Départements : Finance, GREGHEC (CNRS), Economie et Sciences de la décision

Mots clés : Repeated game with incomplete information, Harsanyi doctrine, Belief-free equilibria

We generalize the results of Hörner and Lovo (2009) [15] to N-player games with arbitrary information structure. First, we characterize the set of belief-free equilibrium payoffs under low discounting as the set of feasible payoffs that are individually rational, jointly rational, and incentive compatible. Second, we provide necessary and sufficient conditions on the information structure for this set to be non-empty

Can Securitization Work? Economic, Structural, and Policy Considerations


Journal of Portfolio Management

2011, n°Special Issue: SI

Départements : Finance


Structured asset securitization is capable of generating a number of economic benefits including liquidity provision, an increased ability to manage risk, and value enhancement through the pooling and partitioning of cash flows. But the recent financial crisis has exposed numerous structural flaws, which has led many observers to question whether asset- and mortgage-backed securities should be classified as financial weapons of mass destruction" that require strict containment and possibly even elimination. In this article, Riddiough considers the fundamental economic trade-offs associated with securitization with an eye toward policy development, concluding that asset securitization can work. Whether it actually will work depends on how policymakers respond to the significant challenges of reregulating the financial system.

Clearing House, Margin Requirements, and Systemic Risk

J. Harris, J. Cruz Lopez, C. PERIGNON

Review of Futures Markets

2011, vol. 19, pp.39-54

Départements : Finance, GREGHEC (CNRS)

Mots clés : Derivatives, Tail risk, Default risk, Extreme dependence, Copulas

Margins are the major safeguards against default risk on a derivatives exchange. When the clearing house sets margin requirements, it does so by only focusing on individual clearing firm positions (e.g., the SPAN system). We depart from this traditional approach and present an alternative method that accounts for interdependencies among clearing members when setting margins. Our method generalizes the SPAN system by allowing individual margins to increase when clearing firms are more likely to be in financial distress simultaneously

Contrasting Trends in Firm Volatility

D. THESMAR, M. Thoenig

American Economic Journal: Macroeconomics

octobre 2011, vol. 3, n°4, pp.143-180

Départements : Finance, GREGHEC (CNRS)

Over the past decades, the real and financial volatility of listed firms has increased, while the volatility of private firms has decreased. We first provide panel data evidence that, at the firm level, sales and employment volatility are impacted by changes in the degree of ownership concentration. We then construct a model with private and listed firms where risk-taking is a choice variable at the firm-level. Due to general equilibrium feedback, we find that both an increase in stock market participation and integration in international capital markets generate opposite trends in volatility for private and listed firms

Ex post: The investment performance of collectible stamps


Journal of Financial Economics

mai 2011, vol. 100, n°2, pp.443-458

Départements : Finance, GREGHEC (CNRS)

Mots clés : Alternative investments, Indexes, Long-term returns, Philately, Stamps

This paper uses stamp catalogue prices to investigate the returns on British collectible postage stamps over the period 1900–2008. We find an annualized return on stamps of 7.0% in nominal terms, or 2.9% in real terms. These returns are higher than those on bonds but below those on equities. The volatility of stamp prices approaches that of equities. Stamp returns are impacted by movements in the equity market, but the systematic risk of stamps remains low. Stamps partially hedge against unanticipated inflation. Estimates of average after-cost returns for individual investors show that stamps may rival equities in terms of realized performance.

Growth LBOs

Q. Boucly, D. Sraer, D. THESMAR

Journal of Financial Economics

novembre 2011, vol. 102, n°2, pp.432-453

Départements : Finance, GREGHEC (CNRS)

Mots clés : Leveraged buyout, Credit constraints, Private firms, Corporate growth

Using a data set of 839 French deals, we look at the change in corporate behavior following a leveraged buyout (LBO) relative to an adequately chosen control group. In the 3 years following a leveraged buyout, targets become more profitable, grow much faster than their peer group, issue additional debt, and increase capital expenditures. We then provide evidence consistent with the idea that in our sample, private equity funds create value by relaxing credit constraints, allowing LBO targets to take advantage of hitherto unexploited growth opportunities. First, post-buyout growth is concentrated among private-to-private transactions, i.e., deals where the seller is an individual, as opposed to divisional buyouts or public-to-private LBOs where the seller is a private or a public firm. Second, the observed post-buyout growth in size and post-buyout increase in debt and capital expenditures are stronger when the targets operate in an industry that is relatively more dependent on external finance. These results contrast with existing evidence that LBO targets invest less or downsize

Imperfect Competition in the Interbank Market for Liquidity as a Rationale for Central Banking


American Economic Journal: Macroeconomics


Départements : Finance, GREGHEC (CNRS)

Mots clés : Competition, Interbank Lending, Market Power, Asset Specificity, Central Bank, Lender of Last Resort

Individual Investors and Volatility


The Journal of Finance

août 2011, vol. 66, n°4, pp.1369-1406

Départements : Finance, GREGHEC (CNRS)

Mots clés : Idiosyncratic Volatility, Retail Trading, Noise Trading

We show that retail trading activity has a positive effect on the volatility of stock returns, which suggests that retail investors behave as noise traders. To identify this effect, we use a reform of the French stock market that raises the relative cost of speculative trading for retail investors. The daily return volatility of the stocks affected by the reform falls by 20 basis points (a quarter of the sample standard deviation of the return volatility) relative to other stocks. For affected stocks, we also find a significant decrease in the magnitude of return reversals and the price impact of trades.

Stock Price Fragility

R. Greenwood, D. THESMAR

Journal of Financial Economics

décembre 2011, vol. 102, n°3, pp.471-490

Départements : Finance, GREGHEC (CNRS)

Mots clés : Mutual funds, Flow-driven trading, Non-fundamental risk

We study the relation between the ownership structure of financial assets and non-fundamental risk. We define an asset to be fragile if it is susceptible to non-fundamental shifts in demand. An asset can be fragile because of concentrated ownership, or because its owners face correlated or volatile liquidity shocks, i.e., they must buy or sell at the same time. We formalize this idea and apply it to mutual fund ownership of US stocks. Consistent with our predictions, fragility strongly predicts price volatility. We then extend the logic of fragility to investigate two natural extensions: (1) the forecast of stock return comovement and (2) the potentially destabilizing impact of arbitrageurs on stock prices.