Articles

Pitfalls in Systemic-Risk Scoring

C. PERIGNON

Journal of Financial Intermediation

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Départements : Finance, GREGHEC (CNRS)


Shareholder Bargaining Power and the Emergence of Empty Creditors

S. COLONNELLO, M. EFING, F. ZUCCHI

Journal of Financial Economics

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Départements : Finance, GREGHEC (CNRS)

Mots clés : Empty Creditors, Credit Default Swaps, Bargaining Power, Real Effects

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2787062


Credit default swaps (CDSs) can create empty creditors who may push borrowers into inefficient bankruptcy but also reduce shareholders' incentives to default strategically. We show theoretically and empirically that the presence and the effects of empty creditors on firm outcomes depend on the distribution of bargaining power among claimholders. Firms are more likely to have empty creditors if these would face powerful shareholders in debt renegotiation. The empirical evidence confirms that more CDS insurance is written on firms with strong shareholders and that CDSs increase the bankruptcy risk of these same firms. The ensuing effect on firm value is negative

Sticky Expectations and the Profitability Anomaly

J.-P. BOUCHAUD, P. KRUEGER, A. LANDIER, D. THESMAR

The Journal of Finance

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Départements : Finance

Mots clés : Stock market anomalies, Sticky expectations


We propose a theory of one of the most economically significant stock market anomalies, i.e. the "profitability" anomaly. In our model, investors forecast future profits using a signal and sticky belief dynamics. In this model, past profits forecast future returns (the profitability anomaly). Using analyst forecast data, we measure expectation stickiness at the firm level and find strong support for three additional predictions of the model: (1) analysts are on average too pessimistic regarding the future profits of high profit firms, (2) the profitability anomaly is stronger for stocks which are followed by stickier analysts, and (3) it is also stronger for stocks with more persistent profits

Strategic Default, Debt Structure, and Stock Returns

P. VALTA

Journal of Financial and Quantitative Analysis

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Départements : Finance

Mots clés : Debt Structure, Debt Renegotiation, Stock Returns

http://dx.doi.org/10.2139/ssrn.1101534


This paper theoretically and empirically investigates how the debt structure and the strategic interaction between shareholders and debt holders in the event of default affect expected stock returns. The model predicts that expected stock returns are higher for firms that face high debt renegotiation difficulties and that have a large fraction of secured or convertible debt. Using a large sample of publicly traded US firms between 1985 and 2012, the paper presents new evidence on the link between debt structure and stock returns that is supportive of the model's predictions

Strategic Selection of Risk Models and Bank Capital Regulation

J. E. COLLIARD

Management Science

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Départements : Finance, GREGHEC (CNRS)


The Dynamics of Financially Constrained Arbitrage

D. GROMB, D. VAYANOS

The Journal of Finance

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Départements : Finance, GREGHEC (CNRS)

Mots clés : Arbitrage, financial constraints, market segmentation, liquidity, contagion

https://onlinelibrary.wiley.com/doi/epdf/10.1111/jofi.12689


We develop a model in which financially constrained arbitrageurs exploit price discrepancies across segmented markets. We show that the dynamics of arbitrage capital are self-correcting: following a shock that depletes capital, returns increase, and this allows capital to be gradually replenished. Spreads increase more for trades with volatile fundamentals or more time to convergence. Arbitrageurs cut their positions more in those trades, except when volatility concerns the hedgeable component. Financial constraints yield a positive cross-sectional relationship between spreads/returns and betas with respect to arbitrage capital. Diversification of arbitrageurs across markets induces contagion, but generally lowers arbitrageurs’ risk and price volatility

The effects of investment bank rankings: Evidence from M&A league tables

F. DERRIEN, O. DESSAINT

Review of Finance

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Départements : Finance, GREGHEC (CNRS)


Who are the value and growth investors?

S. BETERMIER, L. CALVET, P. SODINI

The Journal of Finance

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Départements : Finance

Mots clés : Asset pricing, value premium, household finance, portfolio allocation, human capital, factor-based investing

http://dx.doi.org/10.2139/ssrn.2426823


This paper investigates value and growth investing in a large administrative panel of Swedish residents. We show that over the life-cycle, households progressively shift from growth to value as they become older and their balance sheets improve. Furthermore, investors with high human capital and high exposure to macroeconomic risk tilt their portfolios away from value. While several behavioral biases seem evident in the data, the patterns we uncover are overall remarkably consistent with the portfolio implications of risk-based theories of the value premium

Zero-sum revision games

F. GENSBITTEL, S. LOVO, J. RENAULT, T. TOMALA

Games and Economic Behavior

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

Mots clés : Revision games, Zero-sum games, Deadline effect

https://www.sciencedirect.com/science/article/pii/S0899825617301768


In zero-sum asynchronous revision games, players revise their actions only at exogenous random times. Players' revision times follow Poisson processes, independent across players. Payoffs are obtained only at the deadline by implementing the last prepared actions in the “component game”. We characterize the value of this game as the unique solution of an ordinary differential equation and show it is continuous in all parameters. As the duration of the game increases, the limit revision value does not depend on the initial position and is included between the min-max and max-min of the component game. We characterize the equilibrium for 2×2 games. When the component game min-max and max-min differ, the revision game equilibrium have a wait-and-wrestle structure: far form the deadline, players stay put at sur-place action profile, close to the deadline, they take best responses to the action of the opponent

A Model of Trading in the Art Market

S. LOVO, C. SPAENJERS

American Economic Review

mars 2018, vol. 108, n°3, pp.744-774

Départements : Finance, GREGHEC (CNRS)

Mots clés : art; auctions; endogenous trading; price indexes; private values; returns

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2404339


We present an infinite-horizon model of endogenous trading in the art auction market. Agents make purchase and sale decisions based on the relative magnitude of their private use value in each period. Our model generates endogenous cross-sectional and time-series patterns in investment outcomes. Average returns and buy-in probabilities are negatively correlated with the time between purchase and resale (attempt). Idiosyncratic risk does not converge to zero as the holding period shrinks. Prices and auction volume increase during expansions. Our model finds empirical support in auction data and has implications for selection biases in observed prices and transaction-based price indexes


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