Friday, November 15, 2013

MoneyScience News

MoneyScience News


Published / Preprint: Time--consistent investment under model uncertainty: the robust forward criteria. (arXiv:1311.3529v1 [q-fin.PM])

Posted: 14 Nov 2013 05:38 PM PST

We combine forward investment performance processes and ambiguity averse portfolio selection. We introduce the notion of robust forward criteria which addresses the issues of ambiguity in model specification and in preferences and investment horizon specification. It describes the evolution of time-consistent ambiguity averse preferences. read more...

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Blog Post: TheAlephBlog: At the Cato Institute Monetary Policy Conference, Part 6

Posted: 14 Nov 2013 05:20 PM PST

CLOSING ADDRESSread more...

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Published / Preprint: Asset Pricing in the Dark: The Cross-Section of OTC Stocks

Posted: 14 Nov 2013 11:39 AM PST

Over-the-counter (OTC) stocks are far less liquid, disclose less information, and exhibit lower institutional holdings than do listed stocks. We exploit these different market conditions to test theories of cross-sectional return premiums. Compared with premiums in listed markets, the OTC illiquidity premium is several times higher, the size, value, and volatility premiums are similar, and the...

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Published / Preprint: A Supply Approach to Valuation

Posted: 14 Nov 2013 11:39 AM PST

A new methodology for equity valuation arises from the perspective of managers' supply of capital assets. Under q-theory, managers optimally adjust the supply of assets to changes in their market value. The first-order condition of investment then provides a valuation equation that infers asset prices from managers' costs of supplying the assets. This equation fits well the Tobin's q levels...

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Published / Preprint: Dynamic Equilibrium with Two Stocks, Heterogeneous Investors, and Portfolio Constraints

Posted: 14 Nov 2013 11:39 AM PST

We study dynamic equilibrium in a Lucas economy with two stocks, two heterogeneous constant relative risk aversion investors, and portfolio constraints. We focus on margin and leverage constraints, which restrict access to credit. We find a positive relationship between the amount of leverage in the economy and magnitudes of stock return correlations and volatilities. Tighter constraints generate...

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Published / Preprint: The Flip Side of Financial Synergies: Coinsurance Versus Risk Contamination

Posted: 14 Nov 2013 11:39 AM PST

This paper characterizes when joint financing of two projects through debt increases expected default costs, contrary to conventional wisdom. Separate financing dominates joint financing when risk-contamination losses—that are associated with the contagious default of a well-performing project that is dragged down by the other project's poor performance—outweigh standard coinsurance...

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Published / Preprint: Indexing Executive Compensation Contracts

Posted: 14 Nov 2013 11:39 AM PST

We analyze the efficiency of indexing executive pay by calibrating the standard compensation model to a large sample of U.S. CEOs. The benefits from indexing the strike price of options are small, and fully indexing all options would increase compensation costs by 50% for most firms. Indexing has several effects with overall ambiguous outcome; the quantitatively most important effect is to reduce...

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Published / Preprint: Can Equity Volatility Explain the Global Loan Pricing Puzzle?

Posted: 14 Nov 2013 11:39 AM PST

This paper examines whether unobservable differences in firm volatility are responsible for the global loan pricing puzzle, which is the observation that corporate loan interest rates appear to be lower in Europe than in the United States. We analyze whether equity volatility, an error prone measure of firm volatility, can explain this difference in loan spreads. We show that using equity...

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Blog Post: WealthandCapitalMarketsBlog: 12.10.2013: Celent Securities & Investments Webinar: Use of Customer Analytics to Retain and Grow Your Client Base

Posted: 14 Nov 2013 10:47 AM PST

Research Director Isabella Fonseca and Senior Analyst Bill Fearnley, Jr. with Celent̢۪s Securities & Investments Group.read more...

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Blog Post: TheFinancialServicesClub: Transparency, transparency, transparency

Posted: 14 Nov 2013 06:51 AM PST

Lots of talk this week about transparency in banking, and how banks are too opaque and secretive in their approach to customers and charges.read more...

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New in Finance from Wiley - November newsletter

Posted: 14 Nov 2013 04:06 AM PST

New in Finance from Wileyread more...

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Oxford Trip

Posted: 14 Nov 2013 02:39 AM PST

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Published / Preprint: An Excursion-Theoretic Approach to Regulator's Bank Reorganization Problem. (arXiv:1311.3019v1 [q-fin.PR])

Posted: 13 Nov 2013 05:38 PM PST

The importance of the global financial system cannot be exaggerated. When a large financial institution becomes problematic and is bailed out, that bank is often claimed as "too big to fail". On the other hand, to prevent bank's failure, regulatory authorities adopt the Prompt Corrective Action (PCA) against a bank that violates certain criteria, often measured by its leverage ratio. In this...

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