Guest Seminar Series
Friday, September 18th, 2015
Where: CSOM 2-215
When: 10:30am - 12:00pm
Title: Equilibrium with Mutual Organizations in Adverse Selection Economies
Abstract: We develop and equilibrium concept in the Debreu (1954) theory of value tradition for a class of adverse selection economies which includes the Spence (1973) signaling and Rothschild-Stiglitz (1976) insurance environments. The equilibrium exists and is optimal. Further, all equilibria have the same individual type utility vector. The economies are large with a finite number of types that maximize expected utility on an underlying commodity space. An implication of the analysis is that the invisible hand works for this class of adverse selection economies.
Friday, October 2nd, 2015
Where: COSM 2-215
Title: A Tug of War: Overnight Versus Intraday Expected Returns (351.41 KB)
Abstract: We decompose the abnormal profits associated with well-known patterns in the cross-section of expected returns into their overnight and intraday components. We show that, on average, all of the abnormal returns on momentum strategies remarkably occur overnight while the abnormal profits on the other trading strategies we consider occur intraday. These patterns are extremely robust across subsamples and indeed are stronger for large-cap and high-price stocks. Furthermore, we find that all of the variables that are anomalous with respect to the Fama-French-Carhart model have risk premiums overnight that partially offset their much larger intraday average returns. Indeed, a closer look reveals that in every case a positive risk premium is earned overnight for the side of the trade that might naturally be deemed as riskier. In fact, we show that an overnight CAPM explains much of the cross-sectional variation in average overnight returns we document. Finally, we argue that investor heterogeneity may explain why momentum profits tend to accrue overnight. We first provide evidence that, relative to individuals, institutions prefer to trade during the day and against the momentum characteristic. We then highlight conditional patterns that reveal a striking tug of war. Either in the time series, when the amount of momentum activity is particularly low, or in the cross-section, when the typical institution holding a stock has a particularly strong need to rebalance, we find that momentum returns are even larger overnight and more strongly reverse during the day. Both cases generate variation in the spread between overnight and intraday returns on the order of 2 percent per month.
Friday, October 9th, 2015
Where: CSOM 2-215
Title: Estimating Market Risk Factors Incorporating Stock Characteristics
Abstract: We estimate market risk factors using data on stocks' returns and characteristics. The new framework combines the insight of characteristic-based portfolio-spread estimators (eg Fama-French, Carhart, etc.) with the statistical precision of APT-based principal-component (PC) estimators. Using monthly returns over 1927-2013 for about 10,000 stocks, our estimated factors reduce average absolute pricing errors by 1/2 and 1/3 relative to Carhart-factors and PC-factors, respectively. This suggests that stock characteristics can be viewed as altering assets' systematic risk exposure, instead of giving rise to anomalous average returns. Simulation evidence suggests that our estimator more accurately estimates the true factor space in finite sample. Importantly, our estimator is calculated virtually instantaneously.
Friday, October 16th, 2015
Where: CSOM 2-215
Title: The Bright Side of Patents
Abstract: Motivated by concerns that the patent system is harming entrepreneurs and small inventors, this study investigates the bright side of patents. We examine whether patents help innovative start-ups grow, create jobs, and succeed using detailed micro data on all approved and rejected patent applications filed by U.S. start-ups at the U.S. Patent and Trademark Office (USPTO) between 2001 and 2009. We exploit the fact that patent applications are assigned quasi-randomly to USPTO examiners and instrument the probability that an application is approved with individual examiners’ approval rates. We find that start-ups whose first patent application is exogenously approved grow faster, create more jobs, and innovate more than otherwise similar firms whose first application is rejected. We also show that exogenous delays in the patent review process significantly reduce growth, job creation, and innovation, even when patent applications are eventually approved. Our results suggest that patent approval acts as a catalyst that sets a start-up on a growth path by facilitating its access to venture capital—particularly for those surrounded by high uncertainty and information asymmetry.
Friday, November 20th, 2015
Where: CSOM 2-215
Title: Managing Stigma During a Financial Crisis
Abstract: How should regulators design effective emergency lending facilities to mitigate stigma during a financial crisis? I explore this question using data from an unexpected disclosure of a partial list of banks that secretly borrowed from the lender of last resort during the Great Depression. I find evidence of stigma in that depositors withdrew more deposits-to-assets from banks included on the list in comparison to banks left off the list. However, when all banks were simultaneously revealed to have borrowed, there was no stigma. Overall, the results suggest that an emergency lending facility that reveals bank identities simultaneously will mitigate stigma. (JEL Codes: G01, G21, G28)
Friday, December 11th, 2015,
Where: CSOM 2-215
Title: Macroprudential Bank Capital Regulation in a Competitive Financial System
Abstract: We propose a general equilibrium model to examine the systemwide effects of bank capital requirements when firms can substitute between financing from public markets and banks. In our model banks can serve a socially beneficial role of monitoring firms that are credit rationed by public markets, but banks' access to deposit insurance creates socially undesirable risk-shifting incentives. Capital ratio requirements reduce banks’ risk taking incentives, but can also constrain banks’ balance sheets. Our framework allows full flexibility on the specification of the cross-sectional distribution of firm types, banks’ monitoring advantages vis-a-vis public markets, and the distribution of signals available to regulators. Absent balance sheet effects, increases in equity-ratio requirements unambiguously improve welfare and the stability of the banking system. However, when bank capital is scarce, increased equity-ratio requirements may cause banks to substitute from socially valuable projects to high-risk investments. Our model provides conceptual guidance on how the effects of regulatory policies depend on the development of public markets, the cross-sectional distribution of firms, and the risk signals available to regulators..
Friday, December 18th, 2015