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Author: Marcela Giraldo
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Languages : en
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Low quality signals generate pooling equilibria where either low risk projects subsidize high profits of risky projects, or only risky projects are funded in early periods. High quality signals on the other hand generate more efficient markets. The third chapter's main goal is to analyze analysts' coverage of stocks. Here an empirical study estimates the relationship between coverage and the informational environment of a firm. Coverage seems to decrease on average with higher errors in estimation. The data also shows that physically large firms experience a resistance of their coverage to get reduced. Higher past revisions also decrease coverage showing a real cost of uncertainty. Finally, evidence suggests that firms with higher market value have lower probabilities to have their coverage increased.
Author: Marcela Giraldo
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Low quality signals generate pooling equilibria where either low risk projects subsidize high profits of risky projects, or only risky projects are funded in early periods. High quality signals on the other hand generate more efficient markets. The third chapter's main goal is to analyze analysts' coverage of stocks. Here an empirical study estimates the relationship between coverage and the informational environment of a firm. Coverage seems to decrease on average with higher errors in estimation. The data also shows that physically large firms experience a resistance of their coverage to get reduced. Higher past revisions also decrease coverage showing a real cost of uncertainty. Finally, evidence suggests that firms with higher market value have lower probabilities to have their coverage increased.
Author:
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Languages : en
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In this dissertation, we investigate three different questions that are related to information asymmetry and principal-agent problems. The first question is whether principal-agent conflicts lead executives to influence the design of their own employment contracts to exploit the shareholders; the second is the question whether conflicts of interest hamper the effectiveness of affiliated analysts in detecting and curbing earnings management; and the third is whether small investors are at an informational disadvantage. The three studies provide evidence on the existence of information asymmetry and principal-agent problems in various contexts. In particular, we find that the benchmarking process of executive compensation observed is a remedy of the agency costs incurred; that analysts from independent research firms monitor firms they cover more effectively than analysts affiliated with investment banks; and, strikingly, that small investors actually may have better information regarding firms financials even when compared to professional equity analysts. Together, these studies provide new insights into the cornerstone problems of the finance literature.
Author: Andrew Crockett
Publisher:
ISBN:
Category : Capital market
Languages : en
Pages : 62
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Author: Shiyang Huang
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Category :
Languages : en
Pages :
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Author: Luis Arturo Lopez
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Languages : en
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Although the economic literature documents theoretical agency models that align the incentives between the agents and principals, there are countless anecdotes where the theoretical models do not hold in practice. This dissertation examines the behaviors of brokers and intermediaries in various sectors of the real estate market. The first two chapters focus on real estate brokers in the housing market while the latter two focus on financial intermediaries in the securitized mortgage market. The purpose is to draw lessons or policy implications. In Chapter 1, for instance, I find that homes owned by real estate agents sell at a premium of 2.7 percent (or $4,900) above the sale price of clients' homes. Homes of relatives sell at a premium of 1.3 percent (or $2,360). While prior literature attributes the price disparity to the agents' exploitation of information asymmetry about the market, I argue that the disparity likely derives from the contract rigidity in listing agreements. I show that real estate agents enjoy a low cost to breach contracts and can, therefore, enter or exit the market more easily than clients to obtain desirable prices. The policy implication is that reducing the agents' advantage requires increasing the households' power to breach listing agreements but at the trade-off of reducing the willingness of agents to participate in the market.In Chapter 2, using use artificial intelligence, I identify financial steering activity that is fostered by real estate agents representing sellers. Examining data that allows me to observe private information exchanges between listing and buyer agents, I find that over 13 percent of the homes sold had bidding constraints requiring financed buyers to obtain a pre-qualification letter from an affiliated lender even if pre-qualified with another lender. I also find that while steering decreases the transaction costs sellers experience by screening buyers (as agents representing sellers often proclaim), it decreases the equilibrium price of the average home by about 1 percent (or $1,900). Financial steering also displaces financed buyers (especially African Americans and Hispanics) while it favors cash or corporate investors. These findings present a trade-off that policymakers encounter when designing and enforcing anti-steering or pro-competition regulations in financial markets. In Chapter 3, I empirically examine the monitoring role of trustees in the securitization market for commercial mortgages. Using a natural experiment around mergers that result in servicers (i.e., agents) and trustees (i.e., monitors) falling under the same institutional umbrella, I present evidence that affiliation is associated with a decrease in the servicers' effort made on behalf of investors (i.e., principals). I also find that a servicer-trustee affiliation causes distortions to the cash flows to bondholders and a decrease in the average recovery rate of a delinquent commercial mortgage by up to $0.07 per dollar of outstanding debt, accounting for an economic impact of about $4.53 billion in market-wide liquidation losses. The policy implication is that third-party oversight plays an imperative role in aligning incentives.Finally, in Chapter 4, I examine how affiliation to senior bondholders can influence servicing decisions on delinquent loans in non-agency residential mortgage-backed securities. Making use of a natural experiment involving mergers and acquisitions that resulted in servicers owning investors who in turn have ownership of the bonds the servicers manage, I find that affiliation improves the chances that a loan is liquidated through a non-foreclosure avenue by about 33 percent relative to foreclosure. Moreover, analyzing investment-grade bond holdings, I find no evidence of senior investors responding negatively to servicer-investor affiliations in the RMBS market. Overall, these results suggest that exposing servicers to senior bond holdings through an affiliation with their own investors significantly improves the servicers' behavior.
Author: Steven R. Umlauf
Publisher:
ISBN:
Category :
Languages : en
Pages : 115
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Author: Elizabeth Ellen Foote
Publisher:
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Category :
Languages : en
Pages :
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Banks' role as intermediaries between short term investors and long term borrow- ers has dominated the literature. Whilst this is an important feature, there are many other characteristics of banks. Each chapter in this PhD explores a different aspect of banking, from other forms of lending to banks' role in payment services. The first, and principal, chapter considers credit lines: `commitments' to lend if required. These remain off the bank's balance sheet until drawn upon. As off-balance sheet items, unused commitments face low capital charges under existing capital regulation. I ex- plore how this regulatory feature incentivises banks to build up exposure to these lines. This may lead to a suboptimal allocation of credit, ex post, following a market shock, as high drawdowns cause the balance sheet to balloon and the capital requirement to bind. In the second chapter, I consider banks as agents in large-value payment systems. In choosing the optimal time to settle a payment, banks trade off delay costs against the risk of having insuffcient liquidity to make future payments. With banks participating in multiple systems, I show how default in one system may spill over into another, through the strategic behaviour of multi-system participants. I explore how this risk varies with the degree of information asymmetry between agents in different systems. The third chapter focuses on retail banking. In joint work, we examine how the provision of consumer credit, either through current account overdrafts, or through credit card credit lines, affects the way in which debit and credit card networks com- pete. We find that, even when debit and credit cards compete, there are elements of complementarity between them. Banks providing debit cards and current accounts benefit when the consumer delays withdrawal of funds from her current account by using a credit card. This leads to surprisingly high debit merchant fees.
Author: Alain Herscovici
Publisher: Springer
ISBN: 3030148386
Category : Business & Economics
Languages : en
Pages : 187
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The methodological and epistemological problem this book studies is related to the heterogeneity of capital. Capitals are heterogeneous through time and space; at the same time, various heterogeneous capitals must be aggregated, as shown by Ricardo and Keynes. On the other hand, the value of some quantity of aggregate capital changes over time, as demonstrated by Ricardo, Keynes and Stiglitz. For this purpose, this book considers Ricardo, Keynes and Stiglitz. For each author, capital is heterogeneous: Ricardo, from his labor theory; Keynes from the change in expectations, in regard to the return of such capital; and Stiglitz from the divergences between the different groups’ expectations. Ricardo was the first author who explained why the value of capital cannot be determined independently from distribution variables and consequently why such value changes when distribution variables change — this mechanism was deepened by Sraffa and the neo-Ricardian school. Keynes, with the concept of supply price of capital, explains why such value moves in regard to long-term expectations. Finally, Stiglitz’s analysis is a complementary approach in regard to Keynes’s, insofar as he details the mechanism of speculation observed by Keynes from asymmetries of information. Keynes and Stiglitz’s approaches allow complement Ricardo’s analysis, insofar expectations are absent from Ricardo’s framework. This book argues that epistemological choices allow going beyond the traditional opposition between neo-Ricardian and post-Keynesian approaches, introducing path dependence mechanisms and an “expectational” dimension. From the moment that capital is not a constant value over time and space, it is not possible anymore to consider a well-behaved production function, which this book argues implies refuting all the neoclassical framework, from the stability of the macroeconomic equilibrium and the Marshallian market equilibrium to the convergence towards the steady state.
Author: G. Constantinides
Publisher: Elsevier
ISBN: 9780444513632
Category : Business & Economics
Languages : en
Pages : 698
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Arbitrage, State Prices and Portfolio Theory / Philip h. Dybvig and Stephen a. Ross / - Intertemporal Asset Pricing Theory / Darrell Duffle / - Tests of Multifactor Pricing Models, Volatility Bounds and Portfolio Performance / Wayne E. Ferson / - Consumption-Based Asset Pricing / John y Campbell / - The Equity Premium in Retrospect / Rainish Mehra and Edward c. Prescott / - Anomalies and Market Efficiency / William Schwert / - Are Financial Assets Priced Locally or Globally? / G. Andrew Karolyi and Rene M. Stuli / - Microstructure and Asset Pricing / David Easley and Maureen O'hara / - A Survey of Behavioral Finance / Nicholas Barberis and Richard Thaler / - Derivatives / Robert E. Whaley / - Fixed-Income Pricing / Qiang Dai and Kenneth J. Singleton.
Author: Pablo Garcia Sanchez
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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The 2008 crisis and the ensuing Great Recession shook the consensus on how to run economic policy. They reminded us that financial imbalances could significantly derail economic activity. In addition, they showed that existing policy tools did not guarantee macro-financial stability; thereby leading to a rethink of monetary policy and financial regulation. Such a reevaluation has prompted a call for macroprudential tools, i.e., those tools intended for limiting systemic risk and ensuring the resilience of the financial sector. Besides, it has raised new questions about monetary policy and its effects on the risk taking behavior of economic agents - the so-called risk taking channel. A decade from the beginning of the crisis, the contours of a new policy framework for economic and financial stability are still very unclear. Knowledge on which regulatory instruments and how to employ them to curb the buildup of imbalances is limited. Neither is much known about the costs of those instruments.Regulatory intervention constraints some behaviors and distorts the allocation of resources. Consequently, the risk of imposing insidious costs on economic growth must not be underestimated. Likewise, very little is known about the relationship between monetary policy and the perception and pricing of risk by market participants. Nonetheless, it is natural to think that the monetary policy stance may affect the risk taking behavior of economic units, by influencing the attitudes towards risk and the assessment of risks. If so, failure by monetary authorities to consider this phenomenon could exacerbate boom bust patterns. The aim of this thesis is to explore the path towards macroeconomic and financial stability. I have basedmy work on the modern dynamic macroeconomic methods and techniques. Specifically, the first essay develops a canonical real business cycle model to assess the macroeconomic consequences of bank capital requirements, arguably the most used prudential tool. The second essay zooms in on the banking sector, and proposes a structural dynamic model with a large number of heterogeneous banks. The model is employed to study the effectiveness of interbank exposure limits. Having analyzed regulatory intervention, the last essay uses time series econometrics to shed some light on the risk taking channel of monetary policy. It is my firm belief that macroeconomics models for financial stability analysis should consider nonlinear patterns such as state dependence, asymmetries and amplification effects. Under unusual conditions like financial booms or credit crunches, economic agents behave differently than during normal times. In other words, the inner workings of the macroeconomy become essentially nonlinear under abnormal circumstances. Therefore, local behavior around the long run equilibrium of the economy is unlikely to contain relevant information about what may happen in exceptional events. In consequence, I study macroeconomic policy exclusively through the lens of nonlinear frameworks and techniques. Regarding the main results, this thesis makes a strong case in favor of macroprudential regulation. I provide clear evidence suggesting that regulatory intervention can be a powerful tool to strengthen financial resilience, reduce economic volatility and smooth business cycles. In addition, this thesis shows that accommodative monetary policy can produce overconfidence among market participants; thereby increasing risk taking and contributing to the buildup of imbalances. In other words, it provides empirical evidence for the existence of a risk taking channel of monetary policy.
