Spring 2016
3/30/2016Yue Qiu


This paper studies the strategic role of debt structure in improving the bargaining position of a firm's management relative to its non-financial stakeholders. Debt structure is essential for strategic bargaining since it affects the ease of debt contract renegotiation and thus the credibility of bankruptcy threat. We first document that the degree of wage concessions is indeed strongly related to a firm's debt structure ex post in the airline industry and the effect is reduced when bankruptcy threat is less credible for employees. Debt structure is further shown to be adjusted ex ante as a response to an increase in non-financial stakeholders' negotiation power. Utilizing NLRB labor union election as a laboratory setting and employing a regression discontinuity design, we find that passing a union election leads to an increase in the ratio of public debt to total asset and a decrease in the ratio of bank debt to total asset in the following three years after elections, while there is no significant change in the level of debt. Syndication size of newly issued bank loans increases while creditor ownership concentration decreases once vote share for unions passes the winning threshold. Various tests confirm that the debt structure adjustment after new unionization is more likely driven by strategic concerns of management rather than more constrained access to bank loans.
4/13/2016Ding Luo

TITLE: Asset Pricing and Risk Sharing with Limited Enforcement and heterogeneous Preferences

We introduce heterogeneous preferences (heterogeneity in risk aversion and time discount factor) into a two-agent endowment economy with enforcement constraints, aggregate and idiosyncratic uncertainty (Alvarez and Jermann (2001 RFS)), and study the corresponding asset pricing and risk sharing implications. We show that the relative time discount factor and the interaction between heterogeneous risk aversion and aggregate uncertainty affect the evolution of the relative Pareto weight of agents. The more patient agent tends to obtain a higher Pareto weight, and the less risk averse agent tends to do so in booms and the reverse in recessions. We demonstrate that preference heterogeneity can generate a positive equity premium with only idiosyncratic uncertainty present since the conditional pricing kernel is time-varying depending on which agent is the marginal pricer. We show that preference heterogeneity boosts the mean and volatility of equity premium quantitatively in a calibrated model, because the more risk averse and/or the more patient agent cannot trade away most of his income risk with the other agent.


4/20/2016Koushalendra Kishore

Title: Why do banks ignore the warnings?


Although the recent financial crisis came as a surprise to many, there were some employees who had warned against these risks. These warnings were ignored by the CEOs of the banks and the employees were fired. In my paper, I provide a theory of when will a CEO fire the employees and go ahead with risky strategies. Under the condition that one may get fired, the decision of the employees to disclose his concerns leads to a coordination problem among the employees. In a global games setting I show that, banks are more likely go ahead with the risky strategies when they seem to be more profitable.
4/27/2016Jincheng Tong

Title: Uninsurable Tail Risks, Operating Leverage and the Value Premium

We provide a theory of value premium based on idiosyncratic risk in productivities in a world where markets are endogenously incomplete. In our model, fully-diversified equity owner compensates workers using long-term risk-sharing labor contract but cannot commit to firms that yield negative NPV of dividends. The optimal contract makes adverse idiosyncratic shocks uninsurable. We show that limited commitment constraint endogenously generates a high market price of risk through labor-induced operating leverage channel. Different levels of operating leverage across firms lead to heterogeneous exposures to aggregate risk, thus giving rise to differences in returns between value and growth firms. 

5/4/2016Ali Sanati

Title: Rational Stock Market Catering



Can the usual tests of the Catering Theory of corporate investment distinguish between behavioral and rational perspectives? Using USA data from 1970 to 2015 we find test result which have been used in support of behavioral Catering Theory. We present a simple rational model of corporate investment and equity issuance. Data generated by the calibrated model produces the same patterns of coefficients as real data. According to behavioral, periods of high market sentiment and booms, are times of overvaluation. Using these periods we find that the patterns of coefficients are consistent with the rational model and not consistent with the behavioral predictions.



Fall 2015

Brown Bags take place from 12:00pm-1:00pm in room 1-142 unless otherwise specified. 



Andy WintonCheating in China: Corporate Fraud and the Role of Financial Markets
9/16/15Kaushalendra KishoreCorrelated Debt, Information Acquisition and Financial Crisis
9/23/15Mark EganRecycling Bad Apples
9/30/15Junyan ShenCapital Misallocation and Financial Market Friction: Some Evidence by User Cost of Capital
10/7/15John PokornyNominal Frictions, Investment, and Leverage
10/14/15Jincheng TongGovernment Investment and Asset Prices
10/21/15Yue QiuLabor Adjustment Cost and Corporate Hedging
11/4/15Wei Zhang 
11/11/15Xuelin Li 
11/18/15Yao Deng 
12/2/15Ali Sanati 
12/9/15Briana Chang 
12/16/15Ding Luo 


Spring 2015



Murray Frank

3/4/2015Motohiro Yogo
3/11/2015Hengjie Ai
3/18/2015Spring Break, No Brown Bag
3/25/2015 (Cancelled) 
4/1/2015Yue Qiu
4/8/2015Jianfeng Yu
4/15/2015Ding Luo
4/22/2015John Pokorny
5/6/2015Wei Zhang


Spring 2014
2/26/14Ashraf Al Zaman

Cash holdings and technological development: Evidence from IT mediated improvement in inventory management

Since 1980s US manufacturing firms are holding more cash relative to their assets. In this paper, we investigate whether improvements in information technology (IT) and its use have contributed to this increase. We establish that IT contributed to the improvement through inventory channel. IT has enabled firms redeploy their current assets: substituting cash for inventory, engendering an era of sustained higher level of cash holdings. In addition, we also establish that some observed heterogeneity in cash holdings can be explained by the industries firms operate in, the type of inventories they hold, and the financial constraints they face.

3/5/14Jianfeng YuShort- and Long-Run Business Conditions and Expected Returns

(joint with Qi Liu, Libin Tao, and Weixing Wu)

Numerous studies argue that the market risk premium is associated with economic conditions and show that proxies for business conditions indeed predict aggregate market returns. By directly estimating short- and long-run expected economic growth,we show that short-run expected economic growth is negatively related to future returns, whereas long-run expected economic growth is positively related to aggregate market returns. At an annual horizon, short- and long-run expected growth can jointly predict aggregate excess returns with an R2 of 17-19%. Our ndings indicate that the risk premium has both high- and low-frequency fluctuations and highlight the importance of distinguishing short- and long-run economic growth in macro asset pricing models.
3/12/14John PokornyTBD
3/19/14Spring BreakNo seminar
3/26/14Hongda ZhongTBD
4/2/14Martin SzydlowskiTBD
4/9/14Kee Seon NamTBD
4/16/14Junyan ShenTBD
4/23/14Raj SinghTBD
4/30/14Frederico BeloTBD
5/7/14Rajesh AggarwalTBD
Fall 2013
9/4/13Hengjie Ai

A Mechanism Design Model of Firm Dynamics: The Case of Limited Commitment

We present a general equilibrium-mechanism design model with two-sided limitedcommitment that accounts for the observed heterogeneity in firms' ;investment, payout and CEO-compensation policies. In the model, shareholders cannot commit to holding ;negative net present value projects, and managers cannot commit to ;compensation plans that yield life-time utility lower than their outside ;options. Firms operate identical constant return to scale technologieswith i.i.d.\ productivity growth. Consistent with the data, the model endogenouslygenerates a power law in firm size and a power law in CEO compensation. ;We also show that the model is able to quantitatively explain the observed negative ;relationship between firms' investment rates andsize, the positive relationship between firms' size and their dividend and CEO payout, as well as ;variation of firms' investment and payout policies across both size and age.
9/11/13Jeremy Graveline

Crash Risk in Currency Returns

We quantify crash risk in currency returns. To accomplish this task, we develop and estimate an empirical model of exchange rate dynamics using daily data for four currencies relative to the US dollar: the Australian dollar, the British pound, the Swiss franc, and the Japanese yen. The model includes (i) normal shocks with stochastic variance, (ii) jumps up and down in the exchange rate, and (iii) jumps in the variance. We identify these components using data on exchange rates and at-the-money implied variances. We find that crash risk is time-varying. The probability of an upward (downward) jump in the exchange rate, associated with depreciation (appreciation) of the US dollar, is increasing in the domestic (foreign) interest rate. The probability of jumps in variance is increasing in the variance but is not related to interest rates. Many of the jumps in exchange rates are associated with macroeconomic and political news, but jumps in variance are not. On average, jumps account for 25% (and can be as high as 40%) of total currency risk, as measured by the entropy of exchange rate changes, over horizons of one to three months. Preliminary analysis suggests that these properties of currency returns correspond to observed option smiles and that jump risk is priced.

9/18/13Tracy Wang

CEO Investment Cycles

This paper documents the existence of a CEO Investment Cycle, in which firms disinvest early in a CEO's tenure and increase investment subsequently, leading to cyclical firm growth in assets as well as in employment over CEO tenure. The CEO investment cycle occurs for both firings and non-performance related CEO turnovers, and for CEOs with different relationships with the firm prior to becoming CEO. The magnitude of the CEO cycle is substantial: The estimated difference in investment rate between the first three years of a CEO's tenure and subsequent years is approximately 6 to 8 percentage points, which is of the same order of magnitude as the differences caused by other factors known to affect investment, such as business cycles or financial constraints. We present a variety of tests suggesting that this investment cycle is best explained by a combination of agency-based theories: Early in his tenure the CEO disinvests poorly performing assets that his predecessor established and was unwilling to give up on. Subsequently, the CEO overinvests when he gains more control over his board. There is no evidence that the investment cycles occur because of shifting CEO skill or productivity shocks. Overall, the results imply that public corporations' investments deviate substantially from the first-best, and that governance-related factors internal to the firm are as important as economy-wide factors in explaining firms' investments.

9/25/13John PokornyCommodity returns and carry portfolios
10/2/13Amanda HeitzEfficient Contracting, Information Sharing, and Corporate Finance: An International Perspective
10/9/13Yue Qui

CEO Compensation and Maturity of Debt Issues: Evidence From IRC 162(M)

This essay shows that CEO incentives provided by option compensation have significant impacts on maturity of newly issued debt. To identity such impacts, we exploit IRC 162(M) as an exogenous shock to new option grant decisions. IRC 162(M), effective since January 1st, 1994, limits corporate tax deductibility of CEO compensation and also has impacts on new option grant decisions in US firms. Our main findings are: First, after introduction of IRC 162(M), number, volatility sensitivity and price sensitivity of newly granted options in affected firm increase more than those in unaffected firms. Second, maturity of newly issued debt decreases (increases) when volatility (price) sensitivity of new option compensation increases. Overall, results in this essay show that CEO option compensation has large impacts on maturity of newly issued debt.

10/16/13Ding Luo

Short Arbitrage and Abnormal Return Asymmetry

This paper studies how constraints on short arbitrage are associated with abnormal return asymmetry of a broad set of anomalies. Using institutional holdings as a proxy for ease of short selling and idiosyncratic volatility for arbitrage risk, We find that the return asymmetry is stronger when short arbitrage is more constrained (low institutional holdings and high idiosyncratic volatility).

10/23/13Wei ZhangTBD
10/30/13Sangiago BazdreschOut of Sample Prediction tests for a Structural Model of Investment and Financing
11/6/13Motohiro Yogo

Shadow Insurance

Liabilities ceded by life insurers to shadow reinsurers (i.e., less regulated off-balance-sheet entities) grew from $11 billion in 2002 to $363 billion in 2012. Companies that are involved in shadow insurance, which capture 50 percent of the market share, ceded 28 cents of every dollar insured to shadow reinsurers in 2012, up from 2 cents in 2002. Our adjustment for shadow insurance reduces risk-based capital by 49 percentage points (or 3 rating notches) and raises expected loss by at least $15.7 billion for the industry. We develop a structural model to estimate the impact of shadow insurance on the equilibrium supply in the retail market. In the absence of shadow insurance, marginal cost would rise by 1.8 percent, and annual insurance underwritten would fall by $1.4 billion at unit demand elasticity.

11/13/13Kee Seon NamUncertainty about Management and Information Asymmetry
11/20/13Murray Frank

Equilibrium Corporate Capital Structure (work-in-progress with Hong Chen, SAIF)

The trade-off theory of corporate capital structure has been studied in partial equilibrium settings, and in dynamic models that require numerical solutions. Separately, as a result of the financial crisis of 2007-2009, there are studies of financial frictions at the bank. These models are used to study "unconventional Fed policy" along the lines of the policies actually adopted during the crisis. We bring a simple financing friction model closer to the trade-off theory, by permitting equity finance. Cases with and without corporate tax, and the financing friction (bank default) are compared. Results similar to Modigliani-Miller (1958 and 1963) emerge naturally as special cases. Allowing for an equity market tends to undermine the policy justifications of "unconventional Fed policy" because investment tends to avoid distorted markets when an undistorted alternative is available. In contrast to the usual trade-off theory models, the corporate tax rate may affect the volume of household savings and hence the scale of firm production, but not the equilibrium leverage ratio in some equilibria.

12/2/13 - MondayJunyan ShenCapital Misallocation and Financial Intermediary
12/11/13Hongda ZhongThoughts on Optimal Debt Maturity, Number of Creditors and Seniority Structure under Rollover Risk
Spring 2013
2/20/13Tracy WangTBD
2/27/13Huihua LiTBD
3/6/13Jeremy GravelineTBD
3/13/13Amanda Heitz 
3/27/13Murray FrankTBD
4/3/13Junyan ShenTBD
4/10/13Kai Li (UBC)
(11:45-1:15 pm.)
4/17/13Sergiy DubynskiyTBD
4/24/13Hongda ZhongTBD
5/1/13Gordon AlexanderTBD
5/8/13Bob GoldsteinTBD
Fall 2012
9/5/12Huijun WangThe Role of Exploration and Exploitation in Diseconomies of Scale in the Mutual Fund Industry
9/19/12John PokornyDo Agents Equate Marginal Utility Growth Over the Assets They Can Trade?
9/26/12Tao ShenCredit Spreads and Investment Opportunities
10/10/12Hongda ZhongDynamic Trade with Asymmetric Information and Market Timing
10/17/12Junyan ShenEfficiency or Sentiment, discussion on the role of mutual fund flow
10/24/12Hengjie AiCorporate Finance Frictions and Expected Return on Equity: An Irrelevance Result
10/31/12Jianfeng YuArbitrage Asymmetry and the Idiosyncratic Volatility Puzzle
11/7/12Kee Seon NamNational Culture and Innovation: A Cross-Country Empirical Investigation
11/14/12Sergiy DubynskiyTechnological Diversification and Asset Prices
11/28/12Frederico BeloLabor heterogeneity and asset prices: the importance of skilled labor
12/5/12Doriana RuffinoTBD
12/12/12Amanda HeitzTBD


Spring 2012
1/18/12Philip BondThe Effect of Government Guarantees without Risk-Shifting
1/25/12Murray FrankInvestment and the Weighted Average Cost of Capital. How Good is the Standard Model?
2/1/12Stephen ParenteMicro Simulation of Early Health Savings Account Adoption and Policy Proposals
2/8/12Raj AggarwalInternal Capital Markets and Unrelated Acquisitions
2/15/12Tracy WangFirst Year in Office: How Do New CEOs Create Value?
2/22/12Jianfeng YuExtrapolative Expectation and Asset Pricing Puzzles
2/29/12Huijun WangDoes Effort Matter? A Study on Persistence in Mutual Fund Performance
3/7/12Amanda HeitzBlockholder Preference on Governance: Insights from VC-Backed IPOs
3/21/12Tao ShenCredit Spreads and Investment: Aggregate and Firm Level Evidence
3/28/12Moto YogoInsurance Regulation and Policy Firesales
4/4/12Sergiy DubynskiyLearning-by-Doing and Asset Prices
4/11/12Raj SinghEffect of Non-Tradability on Risk Aversion
4/18/12Santiago Bazdresch 
4/25/12Gordon AlexanderHow Informed Are Predictive and Reactive Short Sellers around Earnings Announcements?


Fall 2011
9/7/11Bob GoldsteinDividend Dynamics
9/14/11Tao ShenA Dynamic Learning Model of Takeovers
9/21/11Andrew WintonLender Moral Hazard and Reputation in Originate-to-Distribute Markets
9/28/11Amanda HeitzThe Social Costs and Benefits of Too-Big-To-Fail Banks: A Bounding Exercise
10/5/11John BoydWhat Made US Banks Susceptible to a Systemic Crisis?
10/12/11Daniil OsipovDoes solvency regulation always reduce product market competition? Evidence from the EU life insurance industry
10/19/11Huijun WangPrecautious Exploration of Mutual Fund Investment
10/26/11Doriana RuffinoEstimating Return Parameters with Short Historical Data: The Case of U.S. Treasury Inflation-Protected Securities
11/2/11Jun LiInvestment-specific shocks and momentum profits
11/9/11Santiago BazdreschProduct Differentiations and Stock Returns: Theory andEvidence on Differentiations-Return Dynamics
11/16/11Sergey DubynskiyInvestment and Stock Returns Correlation Puzzle
11/30/11Hongda ZhongHigher Incentives Lead to Lower Effort? Optimal Contracting with Heterogeneous Altruistic Agents
12/7/11Jeremy GravelineExchange Rate Dynamics and International Risk Sharing
12/14/11Junyan ShenInvestor Sentiment and the Economic Forces


Spring 2011
1/28/11Motohiro Yogo, Federal Reserve Bank of MinnesapolisHealth Data
3/4/11Santiago Bazdresch 
3/25/11Tao Shen and Huijun Wang 
4/1/11Jun Li and Sergiy Dubynskiy 

Amanda Heitz


Hongda Zhong

Estimating Bounds on the Present Discounted Value of Economics of Scale in Large Banks

Continuouos Time Agency Problem

4/13/11Santiago Bazdresch 
5/11/11Murray FrankBank Loan Search


Fall 2010
8/4/10Jianfeng YuInvestor Sentiment and Anomalies
9/29/10Fan Yang 
10/6/10Daniil Osipov 
10/8/10Philip BondBankers and Regulators
10/13/10Tao Shen Huijun Wang 
10/22/10Jeremy GravelineThe Cost of Short-Selling Liquid Securities
10/27/10Sergiy Dubynskiy and Jun Li 
11/10/10Pedram NezafatCorporate Capital Structure Variation over Time: Capital Market Driven or Investment Driven?
11/17/10Xiaoji Lin, London School of EconomicsMicro Frictions, Asset Pricing and Aggregate Implications
12/15/10Tracy WangCompetition and Corporate Fraud Waves


Spring 2010
3/2/10Tao Shen and Huijun WangLiterature Review
3/10/10Murray Frank and Pedram NezafatCredit Market Timing
3/22/10Doriana RuffinoRobust Mean-Variance Portfolio Analysis
5/11/10Xiaoyun YuDo Financial intermediaries During IPOs Affect Long-Term Firm Mortality Rates?
5/19/10Pedram NezafatHigh Frequency Capital Structure Decisions: Theory and Empirical Test
5/26/10Fan YangA Production-Based Model on teh Cross- Section Predictability of Commodity Futures Returns
6/4/10Yihui PanThe Determinants and Impact of Executive-Firm Matches
6/11/10Daniil OsipovTrade-off and pecking Order Theories of Capital Structure: The Case of the UK Insureance Industry
6/19/10Raj AggarwalAn Empircal Investivgation of Internal Governance


Fall 2009

Huijun Wang

Tao Shen

Predictability of Excess Returns on Foreign Currency Portfolios and Foreign Equity Portfolios

Replication and Extension: Invvestmenta nd Value, A Neoclassical Benchmark

9/9/09Yihui PanThe Determinants and Impact of Executive-Firm Matches
9/16/09Tracy WangTolerance for Failure and Corporate Innovation
9/23/09Xiaoyun YuInformation From Relationship Lending: Evidence from Loan Defaults in China
9/30/09Frederico BeloA Labor-Augmented Investment-Based Asset Pricing Model
10/28/09Jianfeng YuPsychological Anchors, Underreaction, Overreachtion, and Asset Prices

Jun Li

Daniil Osipov

Investment-based Asset Pricing

Literature Review on Parial Adjustment Toward Target Capital Structures


Fan Yang

Pedram Nezafat

Literature Review of Commodity Pricing

Literature Review of Asset Prices and Business Cycles

12/9/09Frederico BeloIs Investment in Public Capital Good News for the Stock Market?
12/16/09Jianfeng YuA Sentiment-Based Explanation of Forward Premium Puzzle