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Brown Bag Seminar Archives

Spring 2014 Brown Bag Seminars


Ashraf 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.


Jianfeng Yu
Short- 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.


3/12/14 John Pokorny TBD


Spring Break No Seminar


Hongda Zhong


4/2/14 Martin Szydlowski TBD

Kee Seon Nam


4/16/14 Junyan Shen
4/23/14 Raj Singh


4/30/14 Frederico Belo TBD
5/7/14 Rajesh Aggarwal TBD


Fall 2013 Brown Bag Seminars


Hengjie Ai

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

We present a general equilibrium-mechanism design model with two-sided limited commitment 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.



Jeremy 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.


9/18/13 Tracy 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.


John Pokorny Commodity returns and carry portfolios


Amanda Heitz

Efficient Contracting, Information Sharing, and Corporate Finance: An International Perspective

10/9/13 Yue 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.


Ding 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).

10/23/13 Wei Zhang
10/30/13 Sangiago Bazdresch

Out of Sample Prediction tests for a Structural Model of Investment and Financing

11/6/13 Motohiro 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.

11/13/13 Kee Seon Nam

Uncertainty about Management and Information Asymmetry

11/20/13 Murray 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 - Monday

Junyan Shen Capital Misallocation and Financial Intermediary
12/11/13 Hongda Zhong Thoughts on Optimal Debt Maturity, Number of Creditors and Seniority Structure under Rollover Risk


Spring 2013 Brown Bag Seminars


Tracy Wang TBD


Huihua Li TBD
3/6/13 Jeremy Graveline TBD
3/13/13 Amanda Heitz TBD


Spring Break  


Murray Frank


4/3/13 Junyan Shen TBD

Kai Li (UBC)
(11:45-1:15 pm.)


4/17/13 Sergiy Dubynskiy
4/24/13 Hongda Zhong


5/1/13 Gordon Alexander TBD
5/8/13 Bob Goldstein TBD


Fall 2012 Brown Bag Seminars


Huijun Wang The Role of Exploration and Exploitation in Diseconomies of Scale in the Mutual Fund Industry


John Pokorny Do Agents Equate Marginal Utility Growth Over the Assets They Can Trade?


Tao Shen Credit Spreads and Investment Opportunities


Hongda Zhong Dynamic Trade with Asymmetric Information and Market Timing
10/17/12 Junyan Shen Efficiency or Sentiment, discussion on the role of mutual fund flow
10/24/12 Hengjie Ai

Corporate Finance Frictions and Expected Return on Equity: An Irrelevance Result

10/31/12 Jianfeng Yu
Arbitrage Asymmetry and the Idiosyncratic Volatility Puzzle

11/7/12 Kee Seon Nam

National Culture and Innovation: A Cross-Country Empirical Investigation

11/14/12 Sergiy Dubynskiy Technological Diversification and Asset Prices
11/28/12 Frederico Belo Labor heterogeneity and asset prices: the importance of skilled labor
12/5/12 Doriana Ruffino TBD
12/12/12 Amanda Heitz TBD


Spring 2012 Brown Bag Seminars

1/18/12 Philip Bond The Effect of Government Guarantees without Risk-Shifting
1/25/12 Murray Frank Investment and the Weighted Average Cost of Capital. How Good is the Standard Model?
2/1/12 Stephen Parente Micro Simulation of Early Health Savings Account Adoption and Policy Proposals
2/8/12 Raj Aggarwal Internal Capital Markets and Unrelated Acquisitions
2/15/12 Tracy Wang First Year in Office: How Do New CEOs Create Value?
2/22/12 Jianfeng Yu Extrapolative Expectation and Asset Pricing Puzzles
2/29/12 Huijun Wang Does Effort Matter? A Study on Persistence in Mutual Fund Performance
3/7/12 Amanda Heitz Blockholder Preference on Governance: Insights from VC-Backed IPOs
3/21/12 Tao Shen Credit Spreads and Investment: Aggregate and Firm Level Evidence
3/28/12 Moto Yogo Insurance Regulation and Policy Firesales
4/4/12 Sergiy Dubynskiy Learning-by-Doing and Asset Prices
4/11/12 Raj Singh Effect of Non-Tradability on Risk Aversion
4/18/12 Santiago Bazdresch  
4/25/12 Gordon Alexander How Informed Are Predictive and Reactive Short Sellers around Earnings Announcements?


Fall 2011 Brown Bag Seminars


Bob Goldstein Dividend Dynamics


Tao Shen A Dynamic Learning Model of Takeovers


Andrew Winton Lender Moral Hazard and Reputation in Originate-to-Distribute Markets


Amanda Heitz The Social Costs and Benefits of Too-Big-To-Fail Banks: A Bounding Exercise


John Boyd What Made US Banks Susceptible to a Systemic Crisis?


Daniil Osipov Does solvency regulation always reduce product market competition? Evidence from the EU life insurance industry
10/19/11 Huijun Wang Precautious Exploration of Mutual Fund Investment
10/26/11 Doriana Ruffino

Estimating Return Parameters with Short Historical Data: The Case of U.S. Treasury Inflation-Protected Securities

11/2/11 Jun Li Investment-specific shocks and momentum profits
11/9/11 Santiago Bazdresch

Product Differentiations and Stock Returns: Theory andEvidence on Differentiations-Return Dynamics

11/16/11 Sergey Dubynskiy Investment and Stock Returns Correlation Puzzle
11/30/11 Hongda Zhong Higher Incentives Lead to Lower Effort? Optimal Contracting with Heterogeneous Altruistic Agents
12/7/11 Jeremy Graveline Exchange Rate Dynamics and International Risk Sharing
12/14/11 Junyan Shen Investor Sentiment and the Economic Forces


Spring 2011 Brown Bag Seminars

1/28/11 Motohiro Yogo, Federal Reserve Bank of Minnesapolis Health Delta
3/4/11 Santiago Bazdresch  
3/25/11 Tao Shen and Huijun Wang  
4/1/11 Jun 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

4/13/11 Santiago Bazdresch  
5/11/11 Murray Frank Bank Loan Search


Fall 2010 Brown Bag Seminars

8/4/10 Jianfeng Yu Investor Sentiment and Anomalies
9/29/10 Fan Yang  
10/6/10 Daniil Osipov  
10/8/10 Philip Bond Bankers and Regulators
10/13/10 Tao Shen Huijun Wang  
10/22/10 Jeremy Graveline The Cost of Short-Selling Liquid Securities
10/27/10 Sergiy Dubynskiy and Jun Li  
11/10/10 Pedram Nezafat Corporate Capital Structure Variation over Time: Capital Market Driven or Investment Driven?
11/17/10 Xiaoji Lin, London School of Economics Micro Frictions, Asset Pricing and Aggregate Implications
12/15/10 Tracy Wang Competition and Corporate Fraud Waves


Spring 2010 Brown Bag Seminars


Tao Shen and Huijun Wang

Literature Review
3/10/10 Murray Frank and Pedram Nezafat Credit Market Timing
3/22/10 Doriana Ruffino Robust Mean-Variance Portfolio Analysis
5/11/10 Xiaoyun Yu Do Financial intermediaries During IPOs Affect Long-Term Firm Mortality Rates?
5/19/10 Pedram Nezafat High Frequency Capital Structure Decisions: Theory and Empirical Test
5/26/10 Fan Yang A Production-Based Model on teh Cross- Section Predictability of Commodity Futures Returns
6/4/10 Yihui Pan The Determinants and Impact of Executive-Firm Matches
6/11/10 Daniil Osipov Trade-off and pecking Order Theories of Capital Structure: The Case of the UK Insureance Industry
6/19/10 Raj Aggarwal An Empircal Investivgation of Internal Governance


Fall 2009 Brown Bag Seminars


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

9/9/09 Yihui Pan The Determinants and Impact of Executive-Firm Matches
9/16/09 Tracy Wang Tolerance for Failure and Corporate Innovation
9/23/09 Xiaoyun Yu Information From Relationship Lending: Evidence from Loan Defaults in China
9/30/09 Frederico Belo A Labor-Augmented Investment-Based Asset Pricing Model
10/28/09 Jianfeng Yu Psychological 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

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


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