Finance Archives

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Bank Competition, Bank Runs and Opacity

AbstractWe examine the competition among and the opacity of bankssubject to rollover risk. Banks imperfectly compete for uninsureddeposits and choose the opacity of their risky investment. In astatic setup, higher bank competition increases the deposit rate,which increases withdrawal incentives due to strategiccomplementarity and thus raises bank fragility. In a dynamic setupwith entry, a theory of…

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Factor Models for Conditional Asset Pricing

Abstract:This paper develops a methodology for inference on no-arbitrage conditional asset pricing models linear in latent risk factors, valid when the number of assets diverges but the time series dimension is fixed, possibly very small. We show that the no-arbitrage condition permits to identify the risk premia as the expectation of the latent risk factors.…

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A Theory of Debt Accumulation and Deficit Cycles

AbstractThis paper introduces a tractable model of sovereign debt in which governments face intertemporal tradeoffs between (i) preferring more primary deficits to less and (ii) avoiding costly defaults. Governments run deficits when debt and, then, the marginal costs of increasing debt are low. After an extended period of debt accumulation, the probability of default increases,…

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How anomalous are stock market anomalies after all?

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Value Creation and Persistence in Private Equity

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Recommendations with Feedback

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Pay for Future Returns

Is managerial compensation sensitive to future performance or only to realized returns? We show that salary raises of U.S. American CEOs predict positive stock returns in the year after. The wealth e ffect of an average raise is $1.6 million, implying a wealth increase of $0.28 million per 1% stock price increase in the next…

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Gravity, Counterparties, and Foreign Investment

International trade and investment flows obey gravityrelationships, posing a continuing puzzle. New data oncross-border commercial real-estate investment flows showthat they obey gravity, but this relationship is renderedinsignificant by controlling for the presence ofcounterparties from origin countries in destinationcountries. We attribute this to a strong, robust tendency forpreferential matching with same-country counterparties.We set up an equilibrium…

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