Thursday, 19 December, 2024 - 08:30 to 19:30 Paris time
IMPORTANT: Novotel Paris les Halles hotel move to PULLMAN PARIS MONTPARNASSE HOTEL
Earlier this year, we announced that the next edition of the Paris December Finance Meeting was going to be held at the Novotel Les Halles on December 19, 2024.
A couple of weeks ago, we were informed by the Novotel that the hotel is going to be closed down for many months, including December, for important renovations. Thus, exceptionally for this year, the conference has been transferred to the Pullman Paris Montparnasse (19 rue Commandant René Mouchotte 75014 Paris). The Montparnasse area is a very lively area with lots of restaurants, bars and shops and just a few metro stations from downtown Paris.
Please note that this does not change anything to the organization of the conference. Room reservations for the Novotel will be transferred to the Pullman at the same conditions.
We apologize for this last minute change.
The Organizing Committee
Presentation
The EUROFIDAI-ESSEC Paris December Finance Meeting will hold its 22nd edition in-person in downtown Paris (Pullman Paris Montparnasse Hotel) on December 19, 2024.
The conference is organized by EUROFIDAI (European Financial Data Institute) and the ESSEC Business School and jointly sponsored by Amundi / Clipway / PLADIFES / CDC Institute for Economic Research / Six / CERESSEC.
All researchers are invited to present in English their latest research in all areas of finance. Job market papers are welcomed and integrated in normal sessions. They will be highlighted in the program.
In recent years, the conference has become very selective with one in six submitted papers accepted. The EUROFIDAI-ESSEC Paris December Finance Meeting is ranked 2nd in Europe and 8th in the World among large conferences based on papers published in the Top3 Finance and Top5 Economics journals « Ranking Finance Conferences: An Update by D. Urban and E. Smajlbegovic (Erasmus University Rotterdam) - October 24, 2022 ».
Prizes will be awarded for the Best Conference Paper and the Best Job Market Paper.
Timeline
- Submission opening: April 4, 2024
- Submission deadline: June 4, 2024
- Notice of acceptance: September 2024
- Registration deadline for accepted authors: September 24, 2024
- Online Program: Late October, 2024
- Registration deadline for other participants: December 6, 2024
Statistics
In 2024, the submissions were received from 31 different countries:
The U.S (82), The U.K. (45), France (41), Germany (35), Canada (27), China (26), Switzerland (20), the Netherlands (18), Australia (13), Denmark (11), Italy (11), Austria (7), Singapore (7), Finland (6), Hong-Kong (6), South Korea (6), Sweden (5), Norway (4), Belgium (3), Luxembourg (3), Spain (3), Ireland (2), Taiwan (2), Portugal (1), Greece (1), Israel (1), Lebanon (1), Colombia (1), Liechtenstein (1), New Zealand (1), Peru (1)
Our sponsors
Submissions open on April 4th
Presentation
The EUROFIDAI-ESSEC Paris December Finance Meeting will hold its 22nd edition in-person in downtown Paris (Pullman Paris Montparnasse Hotel) on December 19, 2024.
The conference is organized by EUROFIDAI (European Financial Data Institute) and the ESSEC Business School and jointly sponsored by Amundi / Ardian / PLADIFES / CDC Institute for Economic Research / CERESSEC.
All researchers are invited to present in English their latest research in all areas of finance. Job market papers are welcomed and integrated in normal sessions. They will be highlighted in the program.
In recent years, the conference has become very selective with one in six submitted papers accepted. The EUROFIDAI-ESSEC Paris December Finance Meeting is ranked 2nd in Europe and 8th in the World among large conferences based on papers published in the Top3 Finance and Top5 Economics journals « Ranking Finance Conferences: An Update by D. Urban and E. Smajlbegovic (Erasmus University Rotterdam) - October 24, 2022 ».
Prizes will be awarded for the Best Conference Paper and the Best Job Market Paper.
Submission process
Submissions open on April 4th
Only on-line submissions will be considered for the 2024 Paris December Finance Meeting. Before filling the application form, authors should read the following instructions.
Prepare 2 files in pdf format:
- An anonymous version of the paper (the complete paper without the name(s) of the author(s), the acknowledgements and any indication of author’s affiliation)
- A complete version of the paper including the following information: title, name(s) of the author(s), abstract, keywords, email address for each author, complete address(es)
- The abstract to be filled with the submission form should not exceed 150 words.
Keywords
To complete their submission, authors are asked to classify their paper using 3 keywords.
Submission fees
The submission fee for each paper is 50€. The submission fee is non-refundable. Submitting authors will receive a receipt following completion of the submission process. Otherwise, please contact the Organizing Committee via our contact form.
Authors
One author can submit multiple papers (joint or single-authored) but cannot have more than one paper accepted.
Paper diffusion
Accepted papers will be posted on the Financial Economic Network (SSRN) and the website of the conference.
Co-Presidents of the Scientific committee
- Patrice Fontaine - EUROFIDAI, CNRS
- Jocelyn Martel - ESSEC Business School
2024 Scientific committee
- Yacine Ait-Sahalia - Princeton University
- Nihat Aktas - WHU Otto Beisheim School of Management
- Patrick Augustin - McGill University
- Laurent Bach - ESSEC Business School
- Antoine Baena - Banque de France
- Romain Boulland - ESSEC Business School
- Marie-Hélène Broihanne - Université de Strasbourg
- Catherine Casamatta - TSE & IAE, Université de Toulouse 1 Capitole,
- Georgy Chabakauri - London School of Economics
- Jean-Edouard Colliard - HEC Paris
- Pierre Collin-Dufresne - EPFL
- Ian Cooper - London Business School
- Ettore Croci - Universita Cattolica del Sacro Cuore
- Serge Darolles - University Paris-Dauphine
- Matt Darst - Board of Governors of the Federal Reserve
- Laurence Daures - ESSEC Business School
- Eric de Bodt - Norwegian School of Economics
- François Degeorge - University of Lugano
- Catherine D'Hondt - UC Louvain
- Alberta Di Giuli - ESCP Europe
- Philippe Dupuy - EM Grenoble
- Matthias Efing - HEC Paris
- Ruediger Fahlenbrach - EPFL & SFI
- Félix Fattinger - WU Vienna University of Economic and Business
- Patrice Fontaine - EUROFIDAI - CNRS
- Andras Fulop - ESSEC Business School
- Jean-François Gajewski - IAE Lyon
- Roland Gillet - University Paris I Panthéon-Sorbonne
- Edith Ginglinger- Université Paris-Dauphine
- Elise Gourier - ESSEC Business School
- Peter Gruber - University of Lugano
- Alex Guembel - Toulouse School of Economics
- Georges Hübner - HEC Liège
- Julien Hugonnier - EPFL
- Heiko Jacobs - University of Duisburg-Essen
- Sonia Jimenez - Grenoble INP
- Alexandros Kostakis - University of Liverpool
- Dmitry Kuvshinov - Universitat Pompeu Fabra
- Jongsub Lee - Seoul National University
- Junye Li - Fundan University
- Abraham Lioui - EDHEC
- Elisa Luciano - Collegio Carlo Alberto
- Victor Lyonnet - Ohio State University
- Yannick Malevergne - Université de Paris 1 Panthéon-Assas
- Roberto Marfé - Collegio Carlo Alberto
- Jocelyn Martel - ESSEC Business School
- Maxime Merli - Université de Strasbourg
- Sophie Moinas - Toulouse School of Economics
- Lorenzo Naranjo - Washington University in Saint-Louis
- Lars Norden - EBAPE/FVG
- Clemens Otto - Singapore Management University
- Loriana Pelizzon - Goethe University
- Fabricio Perez - Wilfrid Laurier University
- Christophe Pérignon - HEC Paris
- Joël Petey - Université de Strasbourg
- Ludovic Phalippou - Oxford University
- Alberto Plazzi - University of Lugano & SFI
- Sébastien Pouget - Toulouse School of Economics
- Vesa Pursiainen - University of St. Gallen
- Sofia Ramos - ESSEC Business Schooll
- Jean-Paul Renne - HEC Lausanne
- Michel Robe - Robins School of Business, University of Richmond
- Tristan Roger - ICN
- Jeroen Rombouts - ESSEC Business School
- Guillaume Roussellet - McGill University
- Julien Sauvagnat - Bocconi University
- Olivier Scaillet - University of Geneva & SFI
- Mark Seasholes - Arizona University
- Paolo Sodini - Stockholm School of Economics
- Christophe Spaenjers - University of Colorado Boulder
- Peter Tankov - ENSAE Paris
- Roméo Tédongap - ESSEC Business School
- Erik Theissen - University of Mannheim
- Boris Vallée - Harvard Business School
- Philip Valta - University of Bern
- Guillaume Vuillemey - HEC Paris
- Rafal Wojakowski - Surrey Business School
- Alminas Zaldokas - HKUST
- Olivier-David Zerbib - ENSAE Paris
- Marius Zoican - University of Toronto
In 2023, the scientific committee included:
- Yacine Ait-Sahalia - Princeton University
- Nihat Aktas - WHU Otto Beisheim School of Management
- Patrick Augustin - McGill University
- Laurent Bach - ESSEC Business School
- Anne Balter - Tilburg University
- Romain Boulland - ESSEC Business School
- Marie Brière - Amundi, Université Paris Dauphine, Université Libre de Bruxelles
- Marie-Hélène Broihanne - Université de Strasbourg
- Catherine Casamatta - TSE & IEA, Université de Toulouse 1 Capitole
- Georgy Chabakauri - London School of Economics
- Jean-Edouard Colliard - HEC Paris
- Pierre Collin-Dufresne - EPFL
- Ian Cooper - London Business School
- Ettore Croci - Universita Cattolica del Sacro Cuore
- Serge Darolles - University Paris-Dauphine
- Matt Darst - Board of Governors of the Federal Reserve
- Laurence Daures - ESSEC Business School
- Eric de Bodt - Norwegian School of Economics
- François Degeorge - University of Lugano
- Catherine D'Hondt - UC Louvain
- Alberta Di Giuli - ESCP Europe
- Christian Dorion - HEC Montréal
- Matthias Efing - HEC Paris
- Ruediger Fahlenbrach - EPFL & SFI
- Felix Fattinger - WU Vienna University of Economic and Business
- Patrice Fontaine - EUROFIDAI - CNRS
- Andras Fulop - ESSEC Business School
- Jean-François Gajewski - IAE Lyon
- Roland Gillet - Université Paris 1 Panthéon Sorbonne
- Edith Ginglinger - Université Paris-Dauphine
- Elise Gourier - ESSEC Business School
- Peter Gruber - University of Lugano
- Alex Guembel - Toulouse School of Economics
- Georges Hübner - HEC Liège
- Julien Hugonnier - EPFL
- Heiko Jacobs - University of Duisburg-Essen
- Sonia Jimenez - Grenoble INP
- Alexandros Kostakis - University of Liverpool
- Dmitry Kuvshinov - Universitat Pompeu Fabra
- Hugues Langlois - HEC Paris
- Olivier Lecourtois - EM Lyon
- Jongsub Lee - Seoul National University
- Laurence Daures - ESSEC Business School
- Abraham Lioui - EDHEC
- Elisa Luciano - Collegio Carlo Alberto
- Victor Lyonnet - Ohio State University
- Yannick Malevergne - Université de Paris 1 Panthéon-Assas
- Roberto Marfé - Collegio Carlo Alberto
- Jocelyn Martel - ESSEC Business School
- Maxime Merli - Université de Strasbourg
- Sophie Moinas - Toulouse School of Economics
- Lorenzo Naranjo - Washington University in Saint-Louis
- Lars Norden - EBAPE/FVG
- Clemens Otto - Singapore Management University
- Loriana Pelizzon - Goethe University
- Fabricio Perez - Wilfrid Laurier University
- Christophe Pérignon - HEC Paris
- Joël Petey - Université de Strasbourg
- Ludovic Phalippou - Oxford University
- Alberto Plazzi - University of Lugano & SFI
- Sébastien Pouget - Toulouse School of Economics
- Vesa Pursiainen - University of St. Gallen
- Sofia Ramos - ESSEC Business School
- Jean-Paul Renne - HEC Lausanne
- Tristan Roger - ICN
- Jeroen Rombouts - ESSEC Business School
- Guillaume Roussellet - McGill University
- Julien Sauvagnat - Bocconi University
- Olivier Scaillet - University of Geneva & SFI
- Mark Seasholes - Arizona University
- Paolo Sodini - Stockholm School of Economics
- Christophe Spaenjers - University of Colorado Boulder
- Léa Stern - University of Washington
- Peter Tankov - ENSAE Paris
- Roméo Tédongap - ESSEC Business School
- Erik Theissen - University of Mannheim
- Michael Troege - ESCP Europe
- Boris Vallée - Harvard Business School
- Philip Valta - University of Bern
- Guillaume Vuillemey - HEC Paris
- Rafal Wojakowski - Surrey Business School
- Alminas Zaldokas - HKUST
- Olivier-David Zerbib - EDHEC
- Marius Zoican - University of Toronto
Follow these steps to create your account and access the submission form
- To submit a paper, you must create a new 2024 account here.
- You will receive an email to confirm your email address and set-up your password.
- Once setting your account, you will be redirected to your personal dashboard.
- Fill the submission form and pay the submission fees.
- To edit or add a new submission, please log in.
Submission deadline: June 4, 2024
Please use the contact form if you need any help.
December 19, 2024 - Parallel sessions
08:30 - 09:00
09:00 - 10:30
Corporate Finance I ( 12/19/2024 at 09:00 to 12/19/2024 at 10:30 )
Presiding : Lucy Wang (University of Cambridge)
Room : Room 1
Trading Away Incentives
Authors : Xia Shuo (Halle Institute for Economic Research) ; Colonnello Stefano (Ca’ Foscari University of Venice) ; Curatola Giuliano (Ca’ Foscari University of Venice)
Presenter : Colonnello Stefano (Ca’ Foscari University of Venice)
Discussant : In Ji Jang (Bentley University)
Since the early 1990s, equity pay has been the main component of executive compensation at US public firms. Using a sample of top executives from 1992-2020, we estimate to what extent they trade firm equity held in their portfolios to offset annual equity grants. Executives accommodate ownership increases linked to option awards but largely offset option exercises and restricted stock grants through sales of existing shares. Diversification motives cannot explain our findings. From a theoretical standpoint, these results challenge (i) the implicit assumption that managers cannot undo their incentive packages, (ii) the standard modeling practice of treating different equity pay items homogeneously, and (iii) the crucial role of diversification motives in managers' portfolio choices.
Download paperSecurities Lenders in Shareholder Activism
Authors : Jang In Ji (Bentley University) ; Lee Kangryun (Trinity University)
Presenter : In Ji Jang (Bentley University)
Discussant : Marc Arnold (University of St. Gallen)
Securities lenders of target firms recall lendable supply during activist campaign announcements, particularly in control-change campaigns when activists seek to acquire the target or block a merger. This action is associated with potential lenders selling the target firm's shares during acquisition attempts or an increase in the bid price when activists try to block an existing merger. Such recalls increase the likelihood of activists achieving their stated goals, facilitating a better sale of target firms. Overall findings suggests that securities lenders recall loans around the announcement of control-change activism to cooperate with activists.
Download paperDo Loans Carry a Control Spread? Evidence from the Allocation of Control Rights Across Creditors
Authors : Kollmann Nicola (University of St.Gallen) ; Arnold Marc (University of St.Gallen) ; Tengulov Angel (University of Kansas School of Business)
Presenter : Arnold Marc (University of St.Gallen)
Discussant : Stefano Colonnello (Ca' Foscari University of Venice)
This study investigates the influence of creditor control rights on the pricing of corporate loans. Using a novel hand-collected dataset, we differentiate between individual creditors who receive and do not receive control rights after a covenant violation. This differentiation allows us to isolate the influence of shifts in control rights on loan pricing from that of other factors related to covenant violations. We find that creditors exploit control rights to overprice new loans and that this pricing friction in the loan market is of first-order importance in explaining the variation in loan prices and the loan premium puzzle.
Download paper09:00 - 10:30
Currency and Exchange Rates ( 12/19/2024 at 09:00 to 12/19/2024 at 10:30 )
Presiding : patrice fontaine (EUROFIDAI - CNRS)
Room : Room 3
Presidential Cycles and Exchange Rates
Authors : Fu Hsuan (Université Laval) ; Della Corte Pasquale (Imperial College London)
Presenter : Hsuan Fu (Université Laval)
Discussant : Ilaria Piatti (Queen Mary University of London)
This paper shows that US presidential cycles can predict dollar-based exchange rate returns. Armed with more than 40 years of data and a large cross-section of currency pairs, we document an average US dollar appreciation during Democratic presidential terms and an average US dollar depreciation during Republican presidential mandates. The difference in these average exchange rate returns is larger than 5% per annum and is primarily linked to trade tariffs. In contrast, we find no relationship with cross-country interest rate differentials, inflation differentials, and pre-existing economic conditions. We relate these findings to trade policy within a model of exchange rate determination with constrained financiers.
Download paperCurrency Risk Under Capital Controls
Authors : Liu Yang (University of Hong Kong) ; Fang Xiang (University of Hong Kong) ; Liu Sining (University of Hong Kong)
Presenter : Yang Liu (University of Hong Kong)
Discussant : Hsuan Fu (Université Laval)
Currencies in emerging markets with stricter capital controls exhibit lower average returns, unexplained by standard currency risk factors. This relation is pronounced in debtor countries with high foreign currency liability shares. Capital controls mitigate currency risk by preventing depreciation during market turmoil. We propose an intermediary asset pricing model incorporating an occasionally binding credit constraint for borrowing countries. Capital controls lower crises probability and reduce currency crashes. The model replicates the empirical findings and quantifies the financial impact of pecuniary externality. Based on the model, currency risk premia serve as a tool for policy evaluation.
Download paperSubjective Risk Premia in Bond and FX Markets
Authors : Piatti Ilaria (Queen Mary University of London) ; Pesch Daniel (Said Business School, University of Oxford) ; Whelan Paul (Said Business School, University of Oxford)
Presenter : Ilaria Piatti (Queen Mary University of London)
Discussant : Yang Liu (University of Hong Kong)
This paper elicits subjective risk premia from professional forecasters’ beliefs about sovereign bond yields and exchange rates. They are (i) unconditionally negative for bonds, positive for investment currencies and negative for funding currencies, (ii) cyclical and correlated with subjective macro expectations and (iii) predict future realised returns. We estimate a multi-country asset pricing model with three probability measures: risk-neutral, physical and subjective measures. With a structural estimation we quantify the size of financial market belief distortions in terms of a positive bias in long-run economic growth, with reasonable preference parameters, and demonstrate that subjective risk premia can be understood in terms of a classical risk-return trade-off.
Download paper09:00 - 10:30
Asset Allocation ( 12/19/2024 at 09:00 to 12/19/2024 at 10:30 )
Presiding : Serge Darolles (University Paris-Dauphine)
Room : Room 2
Investing in Safety
Authors : Hoerova Marie (European Central Bank) ; Breckenfelder Johannes (European Central Bank) ; Veronica De Falco (European Central Bank)
Presenter : Veronica De Falco (Imperial College London)
Discussant : Seyoung Park (University of Nottingham)
We offer an investor-based perspective on the demand for safe assets and the determination of convenience yields. Using proprietary securities holdings data, we characterize the investor base of both national and supranational safe assets in Europe. To determine who the marginal investor is, we exploit the largest ever joint issuance of supranational bonds by the European Commission to link how different investors rebalance their portfolios following this large shock to the supply of safe assets. We show that, for the same security, the marginal investors in supranational bonds are mutual funds and banks. These investors view the AAA-rated Commission bonds as substitutes for other supranational bonds. To study portfolio re-balancing of investors we construct an instrument based on their ex-ante propensity to hold other supranational bonds. We show that when they acquire Commission bonds, they re-balance away from other supranational bonds and, as a result, the yields on those bonds increase. However, investors do not view the Commission bonds as substitutes for national government bonds. We show that this result is driven by the domestic investors who do not substitute away from national bonds following the Commission bond issuance. Such home bias of domestic investors towards national bonds may help explain why the AAA-rated Commission bonds have substantially higher yields compared to national government AAA-rated securities.
Download paperIncome Disaster Model with Optimal Consumption
Authors : Park Seyoung (University of Nottingham)
Presenter : Seyoung Park (University of Nottingham)
Discussant : Emanuel Moench (Frankfurt School of Finance & Management)
We propose a continuous-time income disaster model with optimal consumption. We endogenously determine the stochastic discount factor (SDF) in an incomplete market caused by income disaster. We then derive optimal consumption decisions for two types of agents, one who is exposed to income disaster and another who is not. We find a large incomplete-markets precautionary savings term between the two agents, which pushes the interest rate down and helps to resolve the risk-free rate puzzle. Interestingly, with income disaster the equilibrium interest rate is a decreasing function of risk aversion while the equity premium is an increasing function. Finally, our model can better match empirical marginal propensities to consume numbers and explain the low-consumption-high-savings puzzle.
Download paperFundamental Disagreement about Monetary Policy and the Term Structure of Interest Rates
Authors : Shuo Cao (Shenzhen Stock Exchange) ; Crump Richard K. (Federal reserve Bank of New York) ; Eusepi Stefano (UT Austin) ; Moench Emanuel (Frankfurt School of Finance & Management)
Presenter : Emanuel Moench (Frankfurt School of Finance & Management)
Discussant : De Falco Veronica (Imperial College London)
Using a unique dataset of individual professional forecasts we document substantial disagreement about the future path of monetary policy particularly at longer horizons. The differences in short rate forecasts imply strong disagreement about the risk-return trade-off of longer-term bonds. We endow investors with heterogeneous beliefs about the short rate with an affine term structure model featuring a time-varying long-run mean of the level factor. The model closely fits Treasury yields and the observed short rate paths. Investors who correctly anticipated the secular decline in rates became increasingly important for the marginal pricing of risk in the Treasury market. Short rate disagreement accounts for about 30 percent of the variation in term premiums.
Download paper09:00 - 10:30
ESG Investing I (ESSEC-Amundi Chair) ( 12/19/2024 at 09:00 to 12/19/2024 at 10:30 )
Presiding : Marco Ceccarelli (VU Amsterdam)
Room : Room 6
Biodiversity Risk, Firm Performance, and Market Mispricing
Authors : HUANG Yujun (Université Paris-Dauphine) ; CRETI Anna (Université Paris-Dauphine) ; JIANG Binghan (Université Paris-Dauphine) ; SANIN Maria-Eugenia (Saclay)
Presenter : Yujun HUANG (Université Paris-Dauphine)
Discussant : Fatima-Zahra Filali-Adib (Copenhagen Business School)
Combining new data on biodiversity-capacity and biodiversity-footprint with firm fundamentals, we conduct a causal analysis of the impact of biodiversity physical risk on firms’ profitability and stock returns. With this purpose, we build a biodiversity index for 35 countries and use a time series model to capture its variation over time. We show that such time trend estimation can be aggregated as risk exposure and can significantly forecast establishment-level profitability. We then show that the market under-prices biodiversity physical risk, which is due to the insufficient analysis of related information and its impact on the firm-level future cash flow. We also document disparities of risk exposure across firms and sectors, and our results are consistent with previous findings in terms of climate physical risk.
Download paperCan Investors Curb Greenwashing?
Authors : Cartellier Fanny (CREST, ENSAE, Institut Polytechnique de Paris) ; Tankov Peter (CREST, ENSAE, Institut Polytechnique de Paris) ; Zerbib Olivier David (CREST, ENSAE, Institut Polytechnique de Paris)
Presenter : Fanny Cartellier (CREST, ENSAE, Institut Polytechnique de Paris)
Discussant : Yujun Huang (Université Paris-Dauphine)
We show how investors with pro-environmental preferences and who penalize revelations of past environmental controversies impact corporate greenwashing practices. Through a dynamic equilibrium model with information asymmetry, we characterize firms' optimal environmental communication, emissions reduction, and greenwashing policies, and we explain the forces driving them. Notably, under a condition that we explicitly characterize, companies greenwash to inflate their environmental score above their fundamental environmental value, with an effort and impact increasing with investors’ pro-environmental preferences. However, investment decisions that penalize greenwashing, policies increasing transparency, and environment-related technological innovation contribute to mitigating corporate greenwashing. We provide empirical support for our results.
Download paperA Breath of Change: Can Personal Exposures Drive Green Preferences?
Authors : Chebotarev Dmitry (Indiana University Bloomington) ; Andersen Steffen (Danmarks Nationalbank) ; Filali-Adib Fatima Zahra (Danmarks Nationalbank) ; Nielsen Kasper Meisner (Copenhagen Business School)
Presenter : Fatima Zahra Filali-Adib (Danmarks Nationalbank)
Discussant : Fanny Cartellier (CREST, ENSAE, Institut Polytechinique de Paris)
Are investors' preferences for responsible investing affected by their idiosyncratic personal experiences? Using a comprehensive dataset with hospital visits and information on portfolio holdings by retail investors in Denmark, we show that when an investor's child is diagnosed with a respiratory disease, the investor decreases (increases) portfolio weights of ``brown" (``green”) stocks but does not alter their holdings of ESG funds. Consistent with parents attributing respiratory diseases to air pollution, we find no effects for non-respiratory diseases. The results are stronger for more severe diseases and are driven by parents who live with their children.
Download paper09:00 - 10:30
Machine Learning ( 12/19/2024 at 09:00 to 12/19/2024 at 10:30 )
Presiding : Goutham Gopalakrishna (University of Toronto, Rotman School of Management)
Room : Room 4
Assessing the Performance of AI-Managed Portfolios (Job Market Paper)
Authors : Praxmarer Mauricio (University of Innsbruck) ; Simon Ivan (University of Innsbruck)
Presenter : Mauricio Praxmarer (University of Innsbruck)
Discussant : Marcel Müller (Karlsruhe Institute of Technology)
We evaluate the performance of AI funds. Using a hand-collected dataset of US mutual funds, our analysis reveals that AI funds yield similar performance as human-managed counterparts with similar investment objectives and fund characteristics. Yet, they fail to outperform a market benchmark. AI tends to benefit funds in activities such as market screening. On the other hand, funds did not manage to employ AI to their advantage to optimize their portfolio allocation, probably due to high turnover. Compared to their peers, AI funds exhibit superior market timing and inferior stock-picking abilities.
Download paperExpected Bond Liquidity
Authors : Müller Marcel (Karlsruhe Institute of Technology) ; Reichenbacher Michael (Karlsruhe Institute of Technology) ; Schuster Philipp ; Uhrig-Homburg Marliese
Presenter : Marcel Müller (Karlsruhe Institute of Technology)
Discussant : Hayong Yun (Michigan State University)
We propose a machine learning methodology for predicting the future liquidity distribution of individual bonds in the U.S. corporate bond market and use it to compute two forward-looking illiquidity measures: expected illiquidity and expected tail illiquidity as measure for downside liquidity risk. We find that bonds characterized by higher expected illiquidity have elevated systematic risk premiums, whereas expected tail illiquidity is predominantly reflected in the alpha. Investors in corporate bond funds preemptively sell their shares in response to anticipated liquidity declines in underperforming funds. All effects are much stronger compared to the standard approach of using today’s realized liquidity.
Download paperLearning Production Process Heterogeneity: Implications of Machine Learning for Corporate M&A Decisions
Authors : Yun Hayong (Michigan State University) ; Lee Jongsub (Seoul National University)
Presenter : Hayong Yun (Michigan State University)
Discussant : Mauricio Praxmarer (University of Innsbruck)
We introduce novel metrics to evaluate production process heterogeneity using both machine learning (ML) and traditional kernels. ML kernels, particularly through economically motivated transfer learning models, enhance M&A forecasting accuracy. A wider gap in firms’ production processes predicts fewer M&As, lower success rates, reduced returns, diminished post-M&A growth, and increased divestiture. Dynamic learning among repeat acquirors alleviates the adverse effects of production process dissimilarity on post-M&A growth. The adoption of Right-to-Work laws, reducing employees’ bargaining power, significantly mitigates the detrimental effects of heterogeneous production processes. Our findings emphasize technology heterogeneity in shaping integration synergy and firm boundary decisions.
Download paper09:00 - 10:30
Risk Management (CDC Institute for Economic Research) ( 12/19/2024 at 09:00 to 12/19/2024 at 10:30 )
Presiding : Abraham Lioui (EDHEC)
Room : Room 5
Exploring Climate Risk, Risk Retention, and CMBS: Understanding their Interplay
Authors : Yildirim Yildiray (CUNY Baruch College) ; Zhu Bing (Technical University of Munich)
Presenter : Yildiray Yildirim (CUNY Baruch College)
Discussant : Dmitry Livdan (UC Berkeley)
This paper investigates how climate risks influence the CMBS market and examines the role of the Dodd-Frank Act's risk retention rule in shaping the behavior of CMBS issuers and loan originators. Using a dataset of over 40,000 loans from 556 CMBS deals issued between 2011 and 2018, we identify significant moral hazard within the "originate-to-distribute" model, particularly related to climate risks. Our findings indicate that following the implementation of the risk retention rule, CMBS issuers reduce their exposure to high-risk geographic areas. In contrast, in the absence of this rule, loan originators expedite the securitization of climateaffected loans, while underwriters avoid including such loans in their portfolios. Although climate risk is reflected in loan pricing, we find evidence of mispricing at the deal level. These results highlight the need for strong regulations to align the interests of market participants and mitigate moral hazard, with important implications for investors, policymakers, and financial stability.
Download paperESG Ratings Management
Authors : Cornaggia Jess (Penn State University) ; Cornaggia Kimberly (Penn State University)
Presenter : Jess Cornaggia (Penn State University)
Discussant : Yildiray Yildirim (CUNY Baruch College)
This paper examines how corporations respond to changes in ESG ratings criteria. Using data from a leading ESG rater, we find that firms’ reported performance on certain criteria improves within the same month of the rater changing its model to place more emphasis on the criteria. This effect is stronger among firms with ESG-focused institutional investors and customers. We find no evidence that reported performance predicts real changes in firms’ ESG behavior. Rather, the improvements appear cosmetic, suggesting the ratings management appeases investors and consumers who rely on ESG ratings. Overall, the results show how firms influence their ESG ratings when they are allowed to engage with ESG raters during the rating process.
Download paperBefore the Storm: Firm Policies and Varying Recession Risk
Authors : Umar Tarik (Rice University) ; Ali Kakhbod (UC Berkeley) ; Livdan Dmitry (UC Berkeley) ; Reppen Max (Boston University)
Presenter : Dmitry Livdan (UC Berkeley)
Discussant : Jess Cornaggia (Penn State University)
We develop a model with varying recession risk and find that the precautionary actions of large firms “before the storm” are more sensitive to these changes. Smaller firms take precautionary steps when recession risk is low to protect their attractive investment program. Otherwise, investment decreases cash holdings and increases liquidation risk in a recession. By contrast, large firms postpone precautionary actions since they invest at lower rates, allowing cash to accumulate. However, when a recession becomes more likely, large firms have less time to accumulate cash, so they cannot delay precautionary measures. We provide empirical evidence to support these predictions.
Download paper10:30 - 11:00
11:00 - 12:30
Market Microstructure / Liquidity I (Equipex PLADIFES) ( 12/19/2024 at 11:00 to 12/19/2024 at 12:30 )
Presiding : Julio Crego (Tilburg University)
Room : Room 4
Information Content of Book and Trade Order Flow at Different Volume Time Scales
Authors : Jonuzaj Mariol (Royal Holloway, University of London) ; Sancetta Alessio (Royal Holloway, University of London) ; Yuri Taranenko (Abu Dhabi Investment Authority)
Presenter : Alessio Sancetta (Royal Holloway, University of London)
Discussant : Eduard Yelagin (University of Memphis)
This paper studies information spillovers from the Limit Order Book (LOB) and assesses their impact on price predictability. Using LOB data for 35 large cap US stocks from March 2019 to February 2023, we aggregate data at different volume time scales and train various machine learning algorithms. Our empirical findings suggest that trade order flow information is the most persistent and prices are predictable with respect to it. We document that machine learning models are able to predict mid price directions accurately, yet this informational advantage dissipates within the first 10 milliseconds. Moreover, our findings suggest that model complexity does not necessarily ensure higher financial returns. Additionally, employing both panel and cross sectional analysis, we examine how stock-specific and market determinants affect daily predicted returns. Overall, higher intraday returns are associated with high market-beta and highly liquid assets. We show that the generated returns are persistent and the dynamic adjustment towards the long-run average lasts up to four trading days. Finally, we document that over time, the value of order flow has decreased. Then, it is plausible to infer that the growing use of algorithmic trading has increased market competition and consequently enhanced market efficiency.
Download paperGamification of Stock Trading: Losers and Winners (Job Market Paper)
Authors : Yelagin Eduard (University of Memphis)
Presenter : Eduard Yelagin (University of Memphis)
Discussant : Ion Lucas Saru (VU Amsterdam)
Gamification of stock trading is a relatively new practice by brokers to incorporate game-like features to increase clients' engagement with trading. This study examines how the market reacts to the introduction of 142 gamification features in the mobile trading apps of 17 major U.S. brokers. I find that the gamification of trading can be viewed as a double-edge sword. It alters and worsens retail traders' strategy by reducing their returns and increasing return volatility. However, it also reduces costs and risks for liquidity providers by making retail order flow less toxic, leading to a positive effect for the rest of the market.
Download paperThe Cross-Section of Price Efficiency (Job Market Paper)
Authors : Saru Ion Lucas (VU Amsterdam)
Presenter : Ion Lucas Saru (VU Amsterdam)
Discussant : Alessio Sancetta (Royal Holloway, University of London)
Inventory management by market makers can result in quoted prices deviating from unobserved fundamental prices. In a setting where prices have a factor structure, inventory management implies that pricing errors of different securities are positively correlated if they load on the same risk factors. Using a state space model, I obtain estimates of 1-minute pricing errors for a balanced panel 1500 stocks for the period 2016 -- 2022. Daily cross-sectional regressions of pricing error correlations reveal a negative relationship between pricing error correlations and the difference in factor betas. ETF flows, rather than holdings, are associated with higher pricing error correlations.
Download paper11:00 - 12:30
ESG Investing II (ESSEC-Amundi Chair) ( 12/19/2024 at 11:00 to 12/19/2024 at 12:30 )
Presiding : Jocelyn Martel (ESSEC Business School)
Room : Room 6
The Costs of Being Sustainable
Authors : Chini Emanuele (University of Luxembourg) ; Kraussl Roman (Bayes Business School) ; Stefanova Denitsa (University of Luxembourg)
Presenter : Emanuele Chini (University of Luxembourg)
Discussant : Victor Saint-Jean (ESSEC Business School)
We assess the sustainability footprint of mutual funds through the holdings they have. Rather than relying on ESG metrics, we define the sustainability of a company by its average impact (either positive, or negative) on the 17 UN Sustainable Development Goals (SDGs). We document that funds aligned with SDGs attract inflows only if they also have a sustainability mandate. For funds without a clear sustainability mandate, the relationship is opposite: those that are more aligned with the SDGs attract fewer flows. When we decompose scores in their positive and negative component, we find that it is mainly the negative component that drives our results. This suggests that, despite investors’ preference for sustainable funds, investors limit their actions to excluding funds that are negatively aligned with SDGs rather than increasing capital inflows towards funds that are positively aligned. Our findings indicate that investors divest from non sustainable funds into “neutral” funds, instead of contributing to advancing SDGs.
Download paperESG Skill of Mutual Fund Managers
Authors : Ceccarelli Marco (VU Amsterdam) ; Evans Richard B. (University of Virginia, Darden School of Business) ; Glossner Simon (University of Virginia, Darden School of Business) ; Homanen Mikael (PRI and Bayes Business School) ; Luu Ellie (Univerist of Glasgow Strathclyde Business School)
Presenter : Marco Ceccarelli (VU Amsterdam)
Discussant : Emanuele Chini (University of Luxembourg)
We propose a new measure of ESG-specific skill based on fund manager trades and ESG rating changes. We differentiate between proactive ESG managers, whose trades predict future changes in ESG ratings, reactive ESG managers, who change their portfolio allocation after a change in ESG ratings occurs, and non-ESG managers. The predictive ability of proactive managers is persistent in out-of-sample tests, consistent with manager skill. For identification, we rely on an exogenous methodology change of one ESG rating provider that redefined ESG ratings levels without releasing new information. Reactive managers significantly change their holdings in firms whose ESG ratings exogenously change, consistent with a lack of ESG skill. Proactive managers do not trade in the direction of the change, consistent with their trading no new ESG information. This ESG skill has economic implications: Investors in mutual funds with an explicit sustainability mandate reward proactive managers with 58bps higher average quarterly flows.
Download paperExit or Voice? Divestment, Activism, and Corporate Social Responsibility
Authors : Saint-Jean Victor (ESSEC Business School)
Presenter : Victor Saint-Jean (ESSEC Business School)
Discussant : Marco Ceccarelli (VU Amsterdam)
Should ESG-motivated investors screen out non-responsible firms from their portfolio, or should they rather invest in them and engage with the management? This paper evaluates the effectiveness of these exit and voice strategies and uncovers the conditions under which each strategy is most impactful. Using a novel classification framework based on US mutual funds’ portfolio holdings and votes on shareholder proposals, I show that voice funds are generally more effective than exit funds at pushing firms towards more socially responsible behavior. The exit strategy relies on the threat of lower stock prices and is effective only in firms with high CEO wealth-performance sensitivity. Voice funds threaten directors’ reelection and are more effective when elections are approaching. Taken together, my results point to the financial and career concerns of the top management as driving pro-social change when shareholders demand it.
Download paper11:00 - 12:30
Corporate Finance II ( 12/19/2024 at 11:00 to 12/19/2024 at 12:30 )
Presiding : Marc Arnold (University of St.Gallen)
Room : Room 2
Bonding with Risk: Corporate Investment and Savings in Risky Financial Assets
Authors : Huang Teng (NEOMA Business School) ; Sacchetto Stefano (IESE Business School)
Presenter : Stefano Sacchetto (IESE Business School)
Discussant : Tiecheng Leng (Harbin Institute of Technology)
We study the rationale behind firms’ investment in risky financial assets by formulating a dynamic model in which firms allocate their precautionary savings to both safe and risky securities. In equilibrium, risky financial asset holdings are positively related to the sensitivity of a firm's financing deficit to the risky asset returns---the "financing deficit beta." Using a comprehensive sample of US corporate financial asset holdings, we find evidence of a positive correlation between risky financial asset holdings and financing deficit betas that capture firms’ incentives to hedge medium-to-long term interest-rate risk. Precautionary motives are stronger in small and R&D-intensive firms.
Download paperKamikazes in Public Procurements
Authors : Fazio Dimas (National University of Singapore) ; Zaldokas Alminas (National University of Singapore)
Presenter : Alminas Zaldokas (National University of Singapore)
Discussant : Stefano Sacchetto (IESE Business School)
Using detailed public procurement data from 15 million item purchases in Brazil spanning 2005-2021, our analysis uncovers a prevalent bid-rigging pattern: the lowest bidder, referred to as `kamikaze', typically withdraws after the auction concludes, paving the way for the second-lowest bid to emerge as the winner. This pattern is observed in up to 22% of procurement auctions and results in 17% higher procurement prices. Kamikaze and winning firms are more likely to share owners, suggesting collusion between them. This bid-rigging behavior correlates with negative outcomes, such as increased mortality rates in public hospitals and more road accidents following road service contracts.
Download paperPolitical Polarization and Corporate Investment
Authors : Leng Tiecheng (Harbin Institute of Technology) ; Julian Atanassov (University of Nebraska) ; Brandon Julio (University of Nebraska)
Presenter : Tiecheng Leng (Harbin Institute of Technology)
Discussant : Alminas Zaldokas (National University of Singapore)
Using data on roll-call voting patterns of U.S. state legislators from 1993 to 2016, we find a negative relationship between firm investment and state legislative polarization, measured as the ideological distance between the Democratic and Republican party medians. An increase of one standard deviation in the average within-state polarization leads to a 4.5% reduction in firm investment rates, controlling for growth opportunities and economic conditions. In response to heightened political polarization, firms are more likely to move their corporate headquarters to less polarized states. We find that polarized states have lower passing rates for legislative bills and higher volatility in economic policy, suggesting that legislative gridlock and policy instability may be two possible mechanisms through which polarization affects firm decisions. Our paper provides new insights into the real effects of political polarization.
Download paper11:00 - 12:30
Private Equity / Venture Capital (CLIPWAY) ( 12/19/2024 at 11:00 to 12/19/2024 at 12:30 )
Presiding : Geoffery Zheng (NYU Shanghai)
Room : Room 5
Retail Customer Reactions to Private Equity Acquisitions
Authors : Tykvova Tereza (University of St.Gallen and Swiss Finance Institute) ; Pursiainen Vesa (University of St.Gallen and Swiss Finance Institute)
Presenter : Tereza Tykvova (University of St.Gallen and Swiss Finance Institute )
Discussant : Simon Richard Mayer (Carnegie Mellon University)
Acquisition announcements by private equity funds are associated with significant reductions in customer visits to target firm outlets. These reductions occur in primary but not in secondary buyouts. The decrease is unlikely to be due to operational changes, as it takes place at announcement and reverses following deal completion. The decrease is larger for more salient deals and for outlets facing more competition, and smaller in areas with higher income, stock market participation, and self-employment rates. Customer and employee reviews do not become more negative. Survey results show that consumers view private equity ownership more negatively than other ownership types.
Download paperVenture Capital Response to Government-Funded Basic Science
Authors : Rezaei Roham (UNSW) ; Yao Yufeng (University of New South Wales)
Presenter : Yufeng Yao (University of New South Wales)
Discussant : Tereza Tykvova (University of St.Gallen and Swiss Finance Institute)
Science-based R&D can deter venture capitalists due to high technical uncertainty. We study whether mission-oriented public funding, which supplies basic science as a public good, fosters VC investments. Our quasi-natural experiment is the BRAIN Initiative (BI), a government-funded program with the goal of mapping the human brain. Using a large language model, we first show the large spillover effects of BI in neurotech. In a difference-in-differences analysis, we find an increase in VC investments in neurotech startups accompanied by higher valuations and more successful VC exits following the BI. The channels driving these results suggest reduced technical uncertainty: 1) increased supply of high-skilled academic labor; 2) more innovation, including breakthrough patents; 3) enhanced integration with complementary technologies, especially AI and big data, which aligns with the BI’s data-driven mission. Our results suggest the supply of government-backed science and scientists can spur follow-on private investments in emerging technologies.
Download paperPrivate Debt versus Bank Debt in Corporate Borrowing
Authors : Mayer Simon Richard (Carnegie Mellon University) ; Haque Sharjil (Federal Reserve Board of Governors); Stefanescu Irina (Federal Reserve Board of Governors)
Presenter : Simon Richard Mayer (Carnegie Mellon University)
Discussant : Yufeng Yao (University of News South Wales)
This paper examines the interaction between private debt and bank debt in corporate borrowing. Combining administrative bank loan-level data with non-bank private debt deals, we document that about half of U.S. private debt borrowers also rely on bank loans. These dual borrowers are typically larger, riskier middle market firms, with fewer tangible assets. We find that banks and private debt lenders provide loans with distinct characteristics that are imperfectly substitutable for each other. Private debt lenders typically extend larger but relatively junior term loans with longer maturities and higher spreads to a given borrower, while banks provide more senior loans, often in the form of credit lines. Once a bank borrower accesses private debt, it often obtains additional bank debt but at significantly higher spreads, which increases firm-level leverage and lowers the interest coverage ratio. In sum, our findings suggest that while private debt complements bank credit lines, it substitutes for relatively riskier bank term loans. However, we also show that private debt can have negative externalities on outstanding bank credit lines by increasing their drawdown and default risks.
Download paper11:00 - 12:30
Options ( 12/19/2024 at 11:00 to 12/19/2024 at 12:30 )
Presiding : Julian Böll (Karlsruhe Institut für Technologie)
Room : Room 2
0DTE Asset Pricing
Authors : Rodrigo Hizmeri (University of Liverpool) ; Freire Gustavo (Erasmus University Rotterdam) ; Almeida Caio (Princeton University)
Presenter : Rodrigo Hizmeri (University of Liverpool)
Discussant : Hyung Joo Kim (Federal Reserve Board)
We document asset pricing implications of the new zero days-to-expiration (0DTE) options, which today account for half of the total S&P 500 option volume. We show that: (i) most of the intra-day equity premium is attributable to market returns between-5% and 0%; (ii) investors demand a high compensation to bear variance risk over the day, which is mainly due to compensation for upside risk; (iii) the variance risk premium predicts intra-day market returns, with a negative relation that is driven by the upside risk premium; and (iv) 0DTE options violate stochastic dominance restrictions, where exploiting this relative mispricing is highly profitable. Our findings contrast with evidence from longer horizons and are consistent with a nonmonotonic pricing kernel that is especially high for positive market returns.
Download paperA New Closed-Form Discrete-Time Option Pricing Model with Stochastic Volatility
Authors : Kim Hyung Joo (Federal Reserve Board) ; Heston Steven (University of Maryland) ; Jacobs Kris (University of Maryland)
Presenter : Hyung Joo Kim (Federal Reserve Board)
Discussant : Heiner Beckmeyer (University of Muenster)
In the option pricing literature, closed-form pricing formulas offer many advantages, but very few solutions are available. Among models that can incorporate the critically important stylized fact of stochastic volatility, the only known reliable solution for European options is the square root model in Heston (1993). Heston and Nandi (2000) offer a discrete-time alternative, but this is a GARCH-type model which does not feature stochastic volatility. We propose a new closed-form discrete-time option pricing model with stochastic volatility. The model is straightforward to implement. We estimate it using (jointly) a long historical time series of index returns and large option panels with various moneyness and maturities. The model vastly outperforms the existing discrete-time Heston-Nandi benchmark and slightly improves on the continuous-time benchmark. The model-implied pricing kernel and risk premiums are very plausible. The newly proposed pricing formula can be used to implement various extensions of the model.
Download paperA Joint Factor Model for Bonds, Stocks and Options
Authors : Beckmeyer Heiner (University of Muenster) ; Bali Turan G. (Georgetown University) ; Goyal Amit (Georgetown University)
Presenter : Heiner Beckmeyer (University of Muenster)
Discussant : Rodrigo Hizmeri (University of Liverpool)
Motivated by structural credit risk models, we propose a parsimonious reduced-form joint factor model for bonds, options, and stocks. By extending instrumented principal component analysis to accommodate heterogeneity in how firm characteristics instrument the sensitivity of bonds, options, and stocks, we find that our model is able to jointly explain the risk-return tradeoff for the three asset classes. Just five factors are sufficient to explain 17% of the total variation of bond, option, and stock returns; these five factors leave the returns of only eleven out of 219 characteristic-managed portfolios unexplained. Finally, we investigate the patterns of commonality in return predictability.
Download paper11:00 - 12:30
Energy and Commodity Markets ( 12/19/2024 at 11:00 to 12/19/2024 at 12:30 )
Presiding : TBC
Room : Room 3
Financialization of Intraday Commodity Trading and Market Quality
Authors : Robe Michel (University of Richmond) ; Raman Vikas (University of Lancaster) ; Yadav Pradeep (University of Lancaster)
Presenter : Michel Robe (University of Richmond)
Discussant : Swaminathan Balasubramaniam (NEOMA Business School)
We provide the first empirical evidence on what Goldstein and Yang (2022) label the “financialization of intraday trading” in commodity markets. We use regulatory crude oil futures trading data with coded trader identities to identify institutional financial traders. We relate the large increase in their intraday trading to statistically and economically significant improvements in bid-ask spreads, market depth, and short-term price efficiency—after accounting for concomitant changes arising from electronification and for changes in the nature and volume of customer trading. Finally, we find that HFT and non-HFT intraday financial traders are associated differentially with improvement in market quality attributes.
Download paperIntermittent power generation and risk premia on electricity futures markets
Authors : Moinas Sophie (Toulouse School of Economics) ; Pouget Sébastien (Toulouse School of Economics) ; Torres Corona Angela (EDF R&D)
Presenter : Sophie Moinas (Toulouse School of Economics)
Discussant : Michel Robe (University of Richmond)
We investigate the impact of an increase in the share of intermittent renewables’ power generation (i.e., from wind and solar) in the production mix on prices, risk exposures, and hedging costs in electricity markets. Reduced form analysis on the German/Austrian market over 2013-2018 shows that intermittent power generation decreases spot prices and increases the risk premium embedded in futures contracts. To investigate this finding, we develop a model where retailers buy electricity from conventional and intermittent power generators on the spot market to match the final demand, and trade futures contracts to hedge their risk exposures. At equilibrium, futures prices encompass a risk premium whose sign and magnitude depend on the market participants’ risk exposures. We structurally estimate the model’s parameters to propose a counterfactual analysis in which we vary the characteristics of the distribution of intermittent power generation. Our simulations suggest that increasing the share of intermittent renewable power generation decreases spot prices. However, the effects on the risk premium can vary, depending on the characteristics of the intermittency distribution. We find higher risk premia when there is greater intermittency or when the integration of renewables into the system is less effective.
Download paperHoarding, Stockouts, and Commodity Futures Prices During the Pandemic
Authors : David Alexander (University of Calgary, Haskayne School of Business) ; Balasubramaniam Swaminathan (NEOMA Business School)
Presenter : Balasubramaniam Swaminathan (NEOMA Business School)
Discussant : Sophie Moinas (Toulouse School of Economics)
During the pandemic, processed foods and other essential products frequently ran out at retail stores while disruptions in production and the supply chain lead to weakness in their underlying spot commodities markets causing negatively related consumer and producer price inflation. In addition, the correlation between retail stockouts of processed goods and the futures basis of the raw material input commodities was positive for most of 2020, while the theory of storage predicts a negative relationship. To understand these findings, we provide a theoretical model in which severe labor shortages lead to contango in the futures market for raw materials, which in turn, influences consumers' hoarding decisions. Our model exhibits an efficient 'no hoarding' equilibrium as well as an inefficient `hoarding equilibrium', depending on the commodity futures' slope. The hoarding equilibrium can arise in a period of dropping wholesale prices, and exhibits rising consumer prices.
Download paper12:30 - 14:00
14:00 - 16:00
Asset Pricing I (Equipex PLADIFES) ( 12/19/2024 at 14:00 to 12/19/2024 at 16:00 )
Presiding : Scott Cederburg (University of Arizona)
Room : Room 4
The U.S. Monetary Policy Transmission in Global Equity Markets
Authors : Andrey Ermolov (Fordham University); Lina Lu (Federal Reserve Bank of Boston); Shaowen Luo (Virginia Tech)
Presenter : Andrey Ermolov (Fordham University)
Discussant : Alberto Quaini (Erasmus University Rotterdam)
We examine the transmission mechanisms of the Federal Reserve’s announcements to equity markets worldwide. We propose a model that explores the monetary policy spillover effects through central bank coordination and production networks. We estimate the model using spatial panel econometric methods with interactive fixed effects breaking down the overall impact of U.S. monetary policy shocks into four distinct components: 1) interest rate effects, 2) direct effects on domestic demand, 3) network effects through international demand, and 4) risk premium effects. Our findings highlight the significant contributions of all effects, with the risk premium and direct effects being the most important.
Download paperAsset Pricing, Participation Constraints, and Inequality
Authors : Gopalakrishna Goutham (Rotman school of management, University of Toronto) ; Payne Jonathan (Princeton University) ; Gu Zhouzhou (Princeton University)
Presenter : Goutham Gopalakrishna (Rotman school of management, University of Toronto)
Discussant : Andrey Ermolov (Fordham University)
How does the regulation of the financial sector impact household welfare and inequality? To answer this question, we build a macroeconomic model with banks, insurance/pension funds, heterogeneous households, asset market participation constraints, and endogenous asset price volatility. We develop a new deep learning methodology for characterizing global solutions to this class of macro-finance models. We show how asset price dynamics, financial stability, and wealth inequality all depend upon which investors are able to purchase assets in bad states of the world. In particular, allowing pension/insurance funds broad access to asset markets leads to greater stability at the business cycle frequency but exposes the household to other risks. Ultimately, the government faces complicated trade-offs between ensuring stability, lowering borrowing costs, and maintaining household equality.
Download paperCommodity Tails and Bond Risk Premia
Authors : Schraeder Stefanie (University of Vienna) ; Wang Yuanzhi (School of Economics, Shandong University) ; Zhang Qunzi (School of Economics, Shandong University)
Presenter : Stefanie Schraeder (University of Vienna)
Discussant : Goutham Gopalakrishna (Rotman school of management, University of Toronto)
Commodity tail risk predicts bond excess returns, both theoretically and empirically. Commodity price jumps cause inflation to deviate from the target rate set by the Taylor rule -- arousing a central bank response of unknown size. This monetary uncertainty affects long-term but not short-term bonds. As especially large shifts trigger central bank reactions, tail risk predicts bond returns better than volatility. These findings are supported in- and out-of-sample: Commodity up-tail (down-tail) significantly predicts bond returns with out-of-sample R-squares up to 19.07% (5.77%). It is unspanned by the yield curve and existing predictors. Robustness occurs across sub-periods and for international markets.
Download paperTradable Factor Risk Premia And Oracle Tests Of Asset Pricing Models
Authors : Quaini Alberto (Erasmus University Rotterdam) ; Trojani Fabio (University of Geneva) ; Ming Yuan (University of Geneva)
Presenter : Alberto Quaini (Erasmus University Rotterdam)
Discussant : Stefanie Schraeder (University of Vienna)
Tradable factor risk premia are the negative factor covariance with the Stochastic Discount Factor projection on returns. They are robust to misspecification or weak identification in asset pricing models, and they are zero for any factor weakly correlated with returns. We propose a simple estimator of tradable factor risk premia that enjoys the Oracle Property, i.e., it performs as well as if the weak or useless factors were known. Empirically, we study various models from the factor zoo and detect a robust subset of economically relevant, well-identified models. Such models feature a low factor space dimension and some degree of misspecification, which harms the interpretation of other notions of factor risk premia in the literature.
Download paper14:00 - 16:00
Climate Finance I (CERESSEC) ( 12/19/2024 at 14:00 to 12/19/2024 at 16:00 )
Presiding : Tuomas Tomunen (Boston College)
Room : Room 6
As dry as a bone: how do banks cope with droughts?
Authors : Kowalewski Oskar (IESEG School of Management) ; Brei Michael (Univ. Lille) ; Spiewanowski Piotr (INE PAN) ; Strobl Eric (University of Bern)
Presenter : Oskar Kowalewski (IESEG School of Management)
Discussant : Boris Vallee (Harvard Business School)
This study investigates the impact of severe droughts on U.S. commercial banks’ agricultural lending from 2000 to 2020. Our results reveal that banks significantly reduced new lending to small farms during drought periods, with the sharpest declines occurring before the introduction of federal aid programs in 2012. Following the 2012 reforms, which provided targeted support for drought-affected areas, the contraction in agricultural lending was partially mitigated, but new credit growth remained constrained. We also find that drought-exposed banks contracted their agricultural loan portfolios moresubstantiallyinnon-irrigatedregions, whereaslendingwasmore resilient in areas with irrigation infrastructure. Single-state and single-county banks exhibited deeper reductions in agricultural lending compared to multi-state and multi-county banks. While the federal aid programs helped stabilize lending in designated drought-affected areas post-2012, they did not fully counterbalance the broader decline in credit supply. Concurrently, we observe that banks in drought-affected regions increased their deposit holdings, indicative of liquidity hoarding behavior driven by precautionary motives. This behavior was especially pronounced among single-state and single-county banks, which tend to have closer ties to their local communities. However, the increased deposits did not translate into heightened lending activity; instead, much of the surplus liquidity was directed into the interbank market.
Download paperMeasurement and Effects of Bank Exit Policies
Authors : Vallee Boris (Harvard Business School) ; Green Daniel (Harvard Business School)
Presenter : Boris Vallee (Harvard Business School)
Discussant : Franck Moraux (Université de Rennes)
We study whether exit policies by financial institutions are an effective tool to address climate change, using bank policies targeting the coal industry around the world as a laboratory. We first develop a comprehensive set of measures of policy strength, and document a large heterogeneity along this dimension. Using a shift-share instrument combining bank-level policy strength and timing with borrower-bank relationships, we document that bank exit policies affect both the financing and operation of coal assets. We observe negative effects of the policies on coal firm debt issuance, as well as on their outstanding debt and total assets. Coal power plants owned by firms exposed to bank exit policies are more likely to be retired, translating into lower CO2 emissions.
Download paperDoes Foreign Institutional Capital Promote Green Growth for Emerging Market Firms?
Authors : Ha Sangeun (Copenhagen Business School) ; Cheong Sophia Chiyoung (ESSCA School of Management) ; Choi Jaewon (ESSCA School of Management) ; Oh Ji Yeol Jimmy (Sungkyunkwan University)
Presenter : Sangeun Ha (Copenhagen Business School)
Discussant : Oskar Kowalewski (IESEG School of Management)
We examine whether foreign institutional capital promotes green growth in emerging-market firms, using firm level and China A-shares’ market-level inclusions in the MSCI Index as shocks to foreign capital. While foreign capital boosts output in emerging-market firms, emissions rise disproportionately, leading to substantial increases in emissions intensity. In contrast, emissions intensities of developed-market firms tend not to increase with foreign capital. Increases in emissions intensity are concentrated in emerging markets with weaker environmental regulations and firms receiving more capital from high-sustainability-score investors. Overall, results suggest that environmental considerations are assigned lower priority when emerging-market firms utilize foreign capital for growth.
Download paperAsset Stranding, Climate Credit Risk and Capital Structure Design Under Global Warming
Authors : Moraux Franck (Université de Rennes, CREM) ; Diakho Moussa (Université de Rennes, CREM)
Presenter : Franck Moraux (Université de Rennes, CREM)
Discussant : Sangeun Ha (Copenhagen Business School)
We examine the impact of climate change on the pricing of corporate securities and on the capital structure of firms. The main transmission channel through which global warming has an impact is the stranding of assets upon liquidation. The predictions of our model are consistent with recent empirical evidence. Global warming has a profound impact on debt capacity and the optimal capital structure. We are the first to document a possible disciplinary effect. The higher the exposure, the lower the leverage, which interestingly does not necessarily lead to lower credit spreads. We disentangle the direct and indirect effects of global warming on credit risk management metrics and show how these effects complement each other and which effects dominate and when.
Download paper14:00 - 16:00
FinTech and Cryptocurrencies ( 12/19/2024 at 14:00 to 12/19/2024 at 16:00 )
Presiding : Peter Gruber (Università della Svizzera italiana)
Room : Room 1
How Carbon Is Priced in Cryptocurrencies
Authors : Lashkaripour Mohammadhossein (Haskayne School of Business, University of Calgary)
Presenter : Mohammadhossein Lashkaripour (Haskayne School of Business, University of Calgary)
Discussant : Christophe Spaenjers (University of Colorado Boulder)
This paper investigates the impact of carbon intensity on cryptocurrency pricing through two channels: (1) the investment decisions of carbon-sensitive green investors, and (2) carbon emissions associated with cryptocurrency production. The CAPM-like pricing relation highlights two key findings: First, ceteris paribus, the carbon premium in cryptocurrencies is lower compared to equities. Second, carbon intensity increases cryptocurrencies' exposure to the market portfolio, which can be mitigated by using green energy in production. Speculative behavior weakens carbon sensitivity, thereby lowering carbon premium in cryptocurrencies. Regulations targeting cryptocurrencies' carbon footprints may provoke negative market reactions as security concerns from lower energy use outweigh environmental benefits.
Download paperBlack Box Credit Scoring and Data Sharing (Job Market Paper)
Authors : Ozanne Alessio (Toulouse School of Economics)
Presenter : Alessio Ozanne (Toulouse School of Economics)
Discussant : Mohammadhossein Lashkaripour (Haskayne School of Business, University of Calgary)
Should credit scoring algorithms be transparent or opaque? I explore this question within a model where the lender uses data shared by borrowers for pricing and rationing credit, and is privately informed about how the algorithm maps data to allocations. I show that revealing the algorithm’s parameters makes it vulnerable to gaming in the form of strategic withholding of unfavorable information. Under opacity, data withholding emerges as a hedging strategy against the unpredictability of the black box and the risk of credit rationing. The lender’s optimal transparency regime maximizes data collection and is socially inefficient as it results in excessive credit rationing. Algorithmic opacity is often efficient as it reduces the stigma around data withholding, thereby expanding credit access for privacy-concerned borrowers. I analyze the distributional impacts of recent algorithmic transparency regulations and offer policy recommendations.
Download paperTrading at Round Numbers
Authors : Spaenjers Christophe (University of Colorado Boulder) ; Rosen Samuel (Temple University)
Presenter : Christophe Spaenjers (University of Colorado Boulder)
Discussant : Alessio Ozanne (Toulouse School of Economics)
Prices of real and private-value assets such as artworks and houses have a strong tendency to cluster at round values. Why? We argue that, first, some investors in these markets operate on coarse valuation grids leading them to use round offers and list prices, and, second, any investor’s tendency to round is a function of both their level of informedness and whether they are buying for financial or non-financial reasons. We develop a simple conceptual framework formalizing these hypotheses and find empirical support for the resulting predictions in data from two distinct NFT marketplaces.
Download paper14:00 - 16:00
Hedge Funds / Mutual Funds (SIX) ( 12/19/2024 at 14:00 to 12/19/2024 at 16:00 )
Presiding : Emanuele Chini (University of Luxembourg)
Room : Room 2
Voice and Exit: Mutual Funds' Reactions to ESG Scandals
Authors : Schmidt Daniel (HEC Paris) ; Filali-Adib Fatima Zahra (Copenhagen Business School) ; von Beschwitz Bastian (Copenhagen Business School)
Presenter : Daniel Schmidt (HEC Paris)
Discussant : Serge Darolles (University Paris-Dauphine)
We study how mutual funds respond to ESG scandals of portfolio companies. We find that, after experiencing an ESG scandal in their portfolio, active mutual fund managers (but not passive ones) are both more likely to vote in favor of ESG proposals and to reduce their stakes (and hence their voting power) in high-ESG risk stocks compared to other funds holding the same stock at the same time. Our results suggest that scandal-shocked funds manage ESG risks in their portfolios, but fail to have much impact as exit undermines their engagement efforts precisely for those firms that have the biggest need for reform.
Download paperA Tale of Bad Days: Flow-Performance Sensitivity and Portfolio Manager Skill
Authors : Badidi Samia (Tilburg University) ; Boons Martijn (NOVA SBE) ; Zambrana Rafael (University of Notre Dame)
Presenter : Samia Badidi (Tilburg University)
Discussant : Daniel Schmidt (HEC Paris)
We show that weekly mutual fund flows are highly responsive to single-day performance, revealing a flow-performance sensitivity at a much higher frequency than previously studied. Notably, this sensitivity is primarily driven by days with unusually low market returns. On these bad days, investors reward funds that outperform and penalize those that underperform. Performance on bad days is persistent and plays a significant role in overall fund performance, supporting the smart-money hypothesis. Our results further highlight a specific bad-day skill distinct from the general managerial skill previously discussed in the literature. Overall, this paper emphasizes the importance of studying the interaction between fund and market returns at high frequency to better understand incentives and skills in the mutual fund industry.
Download paperTarget Date Funds and International Capital Flows
Authors : Andonov Aleksandar (University of Amsterdam) ; Esther Eiling (University of Amsterdam) ; Xu Danjun (University of Amsterdam)
Presenter : Eiling Esther (University of Amsterdam)
Discussant : Samia Badidi (Tilburg University)
Target date funds (TDFs) are investment products designed based on the life-cycle theory to provide exposure to risky assets conditional on investors’ age. Even though life-cycle portfolio choice models do not distinguish between different subcategories of risky assets, we document that in practice, TDFs adopt and maintain rigid allocation weights to domestic and foreign equities. Our main finding is that TDFs implement contrarian rebalancing trades. These trades offset 53% of the mechanical allocation changes caused by realized differences in returns between domestic and foreign equities within the same quarter. TDFs are organized as funds-ofmutual-funds and their holdings account for 10% of the total assets managed by U.S. foreign equity mutual funds in 2022. We show that TDFs’ contrarian rebalancing trades have three implications for international capital markets. First, the growth of TDFs significantly changes the prevalent positive flow-performance sensitivity among mutual funds: foreign equity mutual funds with higher TDF ownership experience outflows when foreign equity outperforms domestic equity. Second, the returns on foreign stocks with higher TDF ownership co-move more with the U.S. equity market and less with the foreign equity market. Finally, at an aggregate level, currencies affected more by TDF rebalancing flows appreciate more when the U.S. stock market delivers higher returns.
Download paperManaging Hedge Fund Liquidity Risks
Authors : Darolles Serge (Université Paris Dauphine - PSL) ; Roussellet Guillaume (McGill University)
Presenter : Serge Darolles (Université Paris Dauphine - PSL)
Discussant : Eiling Esther (University of Amsterdam)
We study hedge fund liquidity management in the presence of liquidity risks on the asset and liability sides. We formulate a two-period model where a single fund has always access to a liquid asset and can invest in an illiquid asset which pays off only at the end of period two. Funding liquidity risk takes the form of a random outflow originating from clients in period one. The fund suffers from a random haircut on the illiquid asset's secondary market to cover its outflow. We solve the allocation problem of the fund and find its optimal allocation between liquid and illiquid assets. We show that the liquidation probability and the portfolio composition of the fund are revealing about the market liquidity and funding liquidity, respectively. Gates, as a device that limits the outflows experienced by the fund, helps it reduce its liquidation risk and harvest liquidity premia.
Download paper14:00 - 16:00
Household Finance ( 12/19/2024 at 14:00 to 12/19/2024 at 16:00 )
Presiding : Paul Beaumont (McGill)
Room : Room 5
Financial Advice and Retirement Savings
Authors : Schmid Markus (University of St. Gallen, SFI, and ECGI) ; Hoechle Daniel (University of Applied Sciences Northwestern Switzerland) ; Ruenzi Stefan (University of Applied Sciences Northwestern Switzerland) ; Schaub Nic (WHU – Otto Beisheim School of Management)
Presenter : Markus Schmid (University of St. Gallen, SFI, and ECGI)
Discussant : Mehran Ebrahimian (Stockholm School of Economics)
We study the impact of financial advice on voluntary pension contributions. We document that advisors help clients to take advantage of tax-exempt retirement accounts and induce them to invest in equities for retirement. We find no indication that the increase in retirement account usage leads to negative side-effects, such as liquidity constraints. Hence, our findings point towards a bright side of financial advice. However, advisors do not in particular target clients that are at a higher risk of undersaving for retirement. Moreover, our results suggest that advisors’ promotion of retirement accounts is associated with increased bank profits from cross-selling activities.
Download paperPicking Up the PACE: Loans for Residential Climate-Proofing
Authors : Xu Guosong (Erasmus Univeristy Rotterdam) ; Bellon Aymeric (UNC Chapel Hill, Kenan-Flagler Business School) ; LaPoint Cameron (Yale School of Management) ; Mazzola Francesco (ESCP)
Presenter : Guosong Xu (Erasmus Univeristy Rotterdam)
Discussant : Markus Schmid (University of St. Gallen, SFI, and ECGI)
Residential Property Assessed Clean Energy (PACE) loans allow homeowners to fund investments in green residential projects through their property tax payments. We assess equity-efficiency trade-offs of PACE using novel loan-level data from Florida merged to property transaction, tax, and permitting records. PACE projects are capitalized into home values, but expansions of the property tax base are partially offset by an uptick in tax delinquency rates among borrowers. Lenders in PACE-enabled counties expand mortgage credit access, indicating improved recovery value despite a PACE lien’s super seniority. Overall, PACE adoption increases local fiscal income while improving climate-proofing of the housing stock.
Download paperSearch and Negotiation with Biased Beliefs in Consumer Credit Markets
Authors : Higgins Sean (Northwestern Unviersity) ; Berwart Erik (CMF) ; Higgins Sean (CMF) ; Kulkarni Sheisha (University of Virginia) ; Truffa Santiago (Universidad de los Andes)
Presenter : Sean Higgins (Northwestern Unviersity)
Discussant : Guosong Xu (Erasmus Univeristy Rotterdam)
How do inaccurate beliefs about the distribution of interest rates affect search and outcomes in consumer credit markets? In collaboration with Chile’s financial regulator, we conducted a randomized controlled trial with 112,063 loan seekers where we showed treated participants a price comparison tool that we built using administrative data on the universe of consumer loans merged with borrower characteristics. The tool shows loan seekers a conditional distribution of interest rates based on similar loans obtained recently by similar borrowers. We find that consumers thought interest rates were lower than they actually were, and the price comparison tool caused them to increase their expectations about the interest rate they would obtain by 56%. Consumers also underestimated price dispersion, and our price comparison tool caused them to increase their estimates of dispersion by 69%. The price comparison tool did not cause people to search or apply at more institutions, but it did cause them to be 28% more likely to negotiate with their lender, to receive 13% more offers and 11% lower interest rates, and to be 5% more likely to take out a loan. We also cross-randomized whether we asked participants their priors about the distribution of interest rates, and find that merely asking these questions led them to search at 4% more institutions and obtain 9% lower interest rates.
Download paperMore than Money: The Role of Inherited Preferences on Wealth Mobility
Authors : Ebrahimian Mehran (Stockholm School of Economics) ; Sodini Paolo (Stockholm School of Economics)
Presenter : Mehran Ebrahimian (Stockholm School of Economics)
Discussant : Sean Higgins (Northwestern Unviersity)
We structurally estimate the individual attitudes that regulate wealth accumulation in a model that explains the wealth gap between individuals of different wealth backgrounds. To this purpose, we use rich micro-level data on the balance sheets, consumption, and risky investments of Swedish residents, in addition to wealth-based family background measured during the offspring’s early adulthood. We find that patience and risk-taking highly correlate with parents’ wealth status. Inherited preferences explain up to 70% of the wealth gap between adult individuals of non-rich backgrounds (making up 91 percent of the population) and very-rich backgrounds (2.2 percent of the population). Early-adulthood heterogeneity in wealth, gifts, inheritances, and transmission of human capital across generations are not dominant determinants of wealth mobility.
Download paper14:00 - 16:00
Market Efficiency ( 12/19/2024 at 14:00 to 12/19/2024 at 16:00 )
Presiding : Alessio Sancetta (Royal Holloway, University of London)
Room : Room 3
Passive Investing and Market Quality
Authors : Schlag Christian (Goethe University Frankfurt and Leibniz Institute SAFE) ; Höfler Philipp (Goethe University Frankfurt) ; Schmeling Maik (Goethe University Frankfurt)
Presenter : Philipp Höfler (Goethe University Frankfurt)
Discussant : Bochen Wu (University of Melbourne)
We show that an increase in passive exchange-traded fund (ETF) ownership leads to stronger and more persistent return reversals. Exploiting exogenous changes due to index reconstitutions, we further show that more passive ownership causes higher bid- ask spreads, more exposure to aggregate liquidity shocks, more idiosyncratic volatility and higher tail risk. We examine potential drivers of these results and show that higher passive ETF ownership reduces the importance of firm-specific information for returns but increases the importance of transitory noise and a firm’s exposure to market-wide sentiment shocks.
Download paperSecurity Lending Market, Secondary Market Arbitrageurs, and ETF Mispricing
Authors : Wu Bochen (University of Melbourne)
Presenter : Bochen Wu (University of Melbourne)
Discussant : Stefan Hirth (Aarhus University)
This paper examines the effect of ETF short-sale costs on ETF pricing efficiency. I find that ETF premiums are positively associated with the costs of borrowing ETFs, which are primarily a friction for ETF secondary market arbitrageurs. Leveraging two exogenous variations in ETF borrowing costs, I establish a causal effect of borrowing costs on ETF mispricing. Furthermore, the sensitivity of ETF mispricing on borrowing costs depends on the activeness of primary market arbitrageurs. Collectively, empirical findings in the paper emphasize the role of the secondary market participants in the ETF arbitrage mechanism, and reveal an interdependence between the primary and secondary markets.
Download paperThe Effect of DLT Settlement Latency on Market Liquidity
Authors : Lin Kaitao (World Federation of Exchanges)
Presenter : Kaitao Lin (World Federation of Exchanges)
Discussant : Philipp Höfler (Goethe University Frankfurt)
This paper investigates the causal relationship between settlement latency introduced specially by permissionless Distributed Ledger Technology (DLT) and market quality in the cryptocurrency domain. We identify blockchain mining power as an instrument for DLT settlement latency and find that the settlement latency significantly lowers liquidity and increases transaction costs. In addition, through the Huang and Stoll (1997) spread decomposition, we document that such latency reduces the adverse selection costs and increases the inventory management costs faced by liquidity suppliers. More broadly, this paper contributes novel evidence on the importance of settlement, and highlights the balance between near-instantaneous settlement offered by DLT and their potential adverse impacts.
Download paperEfficiency Implications of Knowledge Generation: Private versus Public Firms
Authors : Itay Goldstein (University of Pennsylvania) ; Hirth Stefan (Aarhus University) ; Lassak Matthias (Aarhus University)
Presenter : Stefan Hirth (Aarhus University)
Discussant : Kaitao Lin (World Federation of Exchange)
We provide an equilibrium analysis investigating efficiency differences between private and public firms’ information generation strategies, emphasizing public firms’ unique ability to learn additional information from financial markets through the feedback effect. The public firm features two mutually reinforcing sources of inefficiency. First, the public firm relies too much on market prices, as it does not incorporate information acquisition costs borne by market participants. Second, investors’ incentives to acquire information are too strong, as they maximize private trading profits as opposed to real efficiency. As the private firm does not face these distorted information acquisition incentives in our model, it is associated with higher real efficiency.
Download paper16:00 - 16:30
16:30 - 18:00
Corporate Finance III ( 12/19/2024 at 16:30 to 12/19/2024 at 18:00 )
Presiding : Alminas Zaldokas (National University of Singapore)
Room : Room 5
Out of Sight, Out of Mind: Nearby Branch Closures and Small Business Growth
Authors : Stella Andrea (Federal Reserve Board) ; Ranish Ben (Federal Reserve Board) ; Zhang Jeffery (Federal Reserve Board)
Presenter : Andrea Stella (Federal Reserve Board)
Discussant : Christoph Schneider (University of Münster)
Since 2010, the total number of commercial bank branches in the United States has fallen by about 20 percent, with much of the decline in the past several years. We investigate the impact of branch closures on small businesses, whose credit access may be facilitated through local relationships with bankers. We use exogenous variation in branch closures related to mergers and acquisitions to show that closures of nearby branches notably decrease small business employment growth and entry. Specifically, we find that when a typical share of local branches close, nearby small firms' employment declines by approximately 4% over five years and small business entry declines about 1%. The results are robust to variations in our measure of employment, proximity, and construction of the instrument. Altogether, our analysis highlights the continued importance of local bank branches to small businesses.
Download paperThe Human Capital Reallocation of M&As: Inventor-level Evidence
Authors : Wang Lucy (University of Cambridge)
Presenter : Lucy Wang (University of Cambridge)
Discussant : Andrea Stella (Federal Reserve Board)
Mergers and acquisitions (M&As) of innovative firms lead to significant inventor restructuring, with high turnover among target inventors. Following M&As, both retained and departing inventors show increased patenting performance. Acquirers retain productive inventors whose expertise aligns with the merging firms, while external hires bring knowledge from non-core areas. Productivity gains for inventors switching jobs are concentrated among nontop performers and those with higher technological overlap at their new employers. These findings suggest that M&As reduce labor market frictions for inventors, reallocating them to more valuable roles within and beyond the merging firms.
Download paperArbitraging Labor Markets
Authors : Schneider Christoph (University of Münster) ; Gong Minrui (University of Mannheim) ; Maug Ernst (University of Mannheim)
Presenter : Christoph Schneider (University of Münster)
Discussant : Lucy Wang (University of Cambridge)
In this paper we develop a new rationale for the existence of business groups (BGs) and conglomerates that operate in multiple locations within the same country: They arbitrage local labor markets. We show that BG firms grow less if firms of the same group in other locations can offer more attractive access to employees in their local labor market. On the flip side, BG firms grow faster if they offer such access to other firms in the group. Attractiveness is measured as labor costs, labor supply, and labor fit between the firm and the local labor force. Local labor conditions are of similar importance for location decisions of business group firms as general agglomeration economies. Internal flows of employees between BG firms account for only a small portion of the variation in employment growth rates. We conclude that business groups predominantly move jobs, but not employees, between their locations. As such, they arbitrage local labor markets.
Download paper16:30 - 18:00
Climate Finance II (CERESSEC) ( 12/19/2024 at 16:30 to 12/19/2024 at 18:00 )
Presiding : Boris Vallee (Harvard Business School)
Room : Room 6
The Effect of Carbon Pricing on Firm Performance: Worldwide Evidence
Authors : Li Weikai (Singapore Management University); Tinghua Duan (EDHEC); Hong Zhang (Singapore Management University)
Presenter : Tinghua Duan (EDHEC)
Discussant : Tuomas Tomunen (Boston College)
Economists recommend combating climate change with carbon pricing; however, a major block to pricing emissions is concern about the economic costs. This paper examines the impacts of carbon pricing initiatives on the operating performance and market value of publicly listed firms around the world. Using staggered enactment of carbon pricing initiatives across jurisdictions and a triple difference approach, we find a significant reduction in the profitability and value of carbon-intensive firms relative to low-emission firms after the enactment of carbon pricing policies. The reduction in firm profits is driven by both a decrease in sales growth and an increase in operating costs. The reduction in firm value is driven by both an increase in the cost of capital and a decrease in expected future cash flows. Carbon-intensive firms also cut investments, lay off employees, and hold more cash. Cross-country analyses show a stronger effect for firms headquartered in North America and in countries that rely more on fossil fuel energy. Overall, our findings uncover the large distributional impacts of carbon pricing policies on individual firms and complement prior studies focusing on macroeconomic impacts.
Download paperDo firms mitigate climate impact on employment? Evidence from US heat shocks
Authors : Bhardwaj Abhishek (Tulane University) ; Acharya Viral (NYU Stern School of Business) ; Tomunen Tuomas (Boston College)
Presenter : Tuomas Tomunen (Boston College)
Discussant : Ulrich Hege (Toulouse School of Economics)
Using establishment-level data, we show that firms operating in multiple counties in the United States respond to heat-related damages by reallocating employment from affected to unaffected locations. This reallocation is also observed as an increase in job postings in unaffected locations, and at the extensive margin as opening of new establishments. The reallocation response intensifies with damage severity and is especially pronounced among larger, financially stable firms with ESG-oriented investors. This firm-driven reallocation affects how heat shocks impact aggregate outcomes at the county level, including employment growth, wage growth, and labor force participation. Specifically, mitigation behavior by multi-establishment firms acts as a “heat insulator” for the economy, reducing the impact of heat shocks on aggregate employment and wage growth while redistributing economic activity across locations.
Download paperClimate Innovation and Carbon Emissions: Evidence from the Supply Chain Network
Authors : Zhang Yifei (Peking University) ; Hege Ulrich (Toulouse School of Economics)
Presenter : Hege Ulrich (Toulouse School of Economics)
Discussant : Tinghua Duan (EDHEC)
We study the effect of climate-related innovation on carbon emissions by analyzing supply chain networks. We find that climate innovation reduces carbon emissions at customer f irms, driven by product innovations. The effect is economically significant, dominated by the most emission-intensive customer firms, gradually increases over a five-year horizon, and is significant for Scope 1 and Scope 2 emissions. We analyze transmission mechanisms by exploring customers’ choice of suppliers in reaction to climate patent announcements and show that customers exhibit a strong preference for suppliers with climate innovations. We f ind that climate patents also allow suppliers to attract new customers, especially customers with high environmental ratings or a large carbon footprint. Using the quasi-random assignment of patent examiners and the exogenous technological obsolescence of climate patents as instruments suggests a causal interpretation of the main findings.
Download paper16:30 - 18:00
Asset Pricing II ( 12/19/2024 at 16:30 to 12/19/2024 at 18:00 )
Presiding : Alberto Quaini (Erasmus University Rotterdam)
Room : Room 1
Following the Footprints: Towards a Taxonomy of the Factor Zoo
Authors : Meng Fanchen (Karlsruhe Institut für Technologie) ; Böll Julian (Karlsruhe Institut für Technologie) ; Thimme Julian (Karlsruhe Institut für Technologie) ; Uhrig-Homburg Marliese (Karlsruhe Institut für Technologie)
Presenter : Böll Julian (Karlsruhe Institut für Technologie)
Discussant : Chardin Wese Simen (University of Liverpool)
We propose an option volume implied mispricing score (OVIMS) that is informative about the degree to which a cross-sectional asset pricing anomaly is linked to stock mispricing. Anomalies in the categories “momentum” and “profitability” consistently show high mispricing scores. Replicating stock positions with options, we find large price wedges between option-implied synthetic and physical stock positions for high OVIMS anomalies. These disparities suggest that sophisticated traders trade against stock mispricings at the options market. For certain high OVIMS anomalies, the demand for options is driven by proprietary traders of financial institutions. Furthermore, traders build option positions during periods of heightened market frictions, where mispricing is particularly pronounced.
Download paperA Market-Level Tug of War: Asset Pricing on ... Days
Authors : Zhao Lei (ESCP Business School) ; Tao Ran (University of Bristol) ; Wese Simen Chardin (University of Bristol)
Presenter : Chardin Wese Simen (University of Bristol)
Discussant : Xiao Zhang (University of Maryland)
A daily tug of war between opposing investor clienteles at the individual stock level has been documented in the asset pricing literature. We measure a market-level tug of war using the cross-sectional intensity of individual tug of war. The Capital Asset Pricing Model (CAPM) tends to perform better and market betas are strongly and positively related to average returns on “quiet days” when the market-level tug of war is less intensive. We further show that the well-established findings of a robust risk-return trade-off on important information days (e.g., FOMC announcement days and influential firms earnings announcement days), and during pessimistic sentiment periods hold only when such days are “quiet days”. Overall, we provide a novel explanation for the empirical failure of the CAPM and show that investor disagreement has significant implications on asset pricing.
Download paperSame-Weekday Momentum
Authors : Zhang Xiao (University of Maryland) ; Da Zhi (University of Notre Dame)
Presenter : Xiao Zhang (University of Maryland)
Discussant : Scott Cederburg (University of Arizona)
A disproportionately large fraction (70%) of stock momentum reflects return continuation on the same weekday (e.g., Mondays to Mondays), or the same-weekday momentum. Even accounting for partial reversals in other weekdays, the same-weekday momentum still contributes to a significant fraction (20% to 60%) of the momentum effect. This pattern is robust to different size filters, weighing schemes, time periods, and sample cuts. The same-weekday momentum is hard to square with traditional momentum theories based on investor mis-reaction. Instead, we provide direct and novel evidence that links it to within-week seasonality and persistence in institutional trading. Overall, our findings highlight institutional trading as an important driver of the stock momentum.
Download paper16:30 - 18:00
Banking / Financial Intermediation ( 12/19/2024 at 16:30 to 12/19/2024 at 18:00 )
Presiding : Sean Higgins (Northwestern Unviersity)
Room : Room 4
Banking on Deposit Relationships: Implications for Hold-Up Problems in the Loan Market
Authors : Cao Jin (Norges Bank) ; Garcia-Appendini Emilia (Norges Bank) ; Huylebroek Cédric (Norges Bank)
Presenter : Emilia Garcia-Appendini (Norges Bank)
Discussant : Santiago Barraza (ESCP Business School)
By lending to a firm, inside banks gain an informational advantage over outside banks, enabling them to hold up borrowers and extract informational rents. Using unique data on firm-bank deposit and lending relationships in Norway, we show that deposit relationships between firms and outside banks mitigate inside banks’ informational advantage, thereby attenuating hold-up. This result holds using quasi-random variation in deposit relationships induced by the deposit insurance threshold, and is driven by the information provided by firms’ deposit account activities to outside banks (not cross-selling). Overall, our paper offers the first evidence that deposit relationships impact lender competition.
Download paperAwash with Money: The Real Effects of Institutional Loan Demand Pressure on Corporate Decisions
Authors : Barraza Santiago (ESCP Business School) ; Civelli Andrea (Bentley University) ; Di Giuli Alberta (ESCP Business School)
Presenter : Santiago Barraza (ESCP Business School)
Discussant : Xander Hut (Goethe University Frankfurt)
We study the effects of institutional demand pressure for corporate loans on real corporate outcomes. To this end, we propose a novel empirical strategy based on a shift-share estimation approach. We document that an exogenous increase in institutional investors' demand for corporate loans increases the probability a firm obtains new institutional loans, makes public and private value-creating acquisitions, pays dividends, and repurchases stocks. Smaller, unrated, or rated non-investment grade firms benefit the most from the shock. Overall, we show that increases in institutional investors' demand for corporate loans affect real corporate outcomes without hurting allocation efficiency.
Download paperDo Voluntary Pledges Make Loans Greener?
Authors : Berg Tobias (Goethe University Frankfurt) ; Döttling Robin (Rotterdam School of Management, Erasmus University) ; Hut Xander (Goethe University Frankfurt) ; Wagner Wolf (Rotterdam School of Management, Erasmus University)
Presenter : Xander Hut (Goethe University Frankfurt)
Discussant : Emilia Garcia-Appendini (Norges Bank)
We analyze whether voluntary green pledges by lenders result in greener loan origination in the project finance (PF) market. This market is of key importance for financing climate-relevant projects globally. We can classify the environmental impact of expenditures financed through PF loans because projects are single-purpose developments. We exploit a tightening of the Equator Principles (EP) that introduced comprehensive climate risk management requirements to PF loans. This allows us to disentangle the effect of a lender's sign-up decision from the impact of the pledge itself. We find no evidence for a shift to greener lending by EP members after the tightening. We corroborate this null result using a wide range of alternative model specifications.
Download paper16:30 - 18:00
Market Microstructure / Liquidity II ( 12/19/2024 at 16:30 to 12/19/2024 at 18:00 )
Presiding : Laurence Daures (ESSEC Business School)
Room : Room 2
Predatory Trading in a Rational Market
Authors : Fardeau Vincent (HSE University)
Presenter : Vincent Fardeau (HSE University)
Discussant : Junli Zhao (City, University of London)
I study predatory trading in a model where the predators and the prey trade with competitive, rational hedgers. Both the prey's distress and market depth are endogenous. On the one hand, limited depth helps predators move prices to push the prey into distress. On the other hand, the mere anticipation by hedgers of the prey's firesale lowers the current asset price and makes price impact trader-specific. The prey's price impact decreases before firesales, while predators' increases, making predation cheaper for them. The model predicts that predatory trading occurs in sufficiently thin markets, and shows that short-selling bans may be ineffective against predatory trading.
Download paperEliciting the private signal distribution from option prices
Authors : Crego Julio (Tilburg University)
Presenter : Julio Crego (Tilburg University)
Discussant : Vincent Fardeau (HSE University)
I provide a theoretical framework that characterizes which option strike an informed agent buys or sells after a given signal. The informed agent faces a trade-off between higher exposure to the asset or a more favorable price for the option. In equilibrium, he implements a mixed strategy across strikes to camouflage himself as a noise trader. However, he only considers strikes within a segment of the strike line. This segment depends on the realization of the private signal. As a result, there is a one-to-one mapping between the asset distribution conditional on each possible signal realization and the price slope. Additionally, the model suggests that market makers can make the information asymmetry losses of noise traders independent of the private signal realization.
Download paperSpecialization and integration in markets for financial information
Authors : Zhao Junli (City, University of London) ; Cespa Giovanni (City, University of London) ; Zhao Wei (City, University of London)
Presenter : Junli Zhao (City, University of London)
Discussant : Julio Crego (Tilburg University)
We argue that when financial information providers specialize, that is when they either offer certification (paid-for research) to firms or analyst services to investors, their product market decisions are strategic substitutes. This segments the information market, with certified firms displaying more informative security prices than non-certified ones. In turn, this compresses the demand for information the analyst faces, leading it to charge a higher price for information. Conversely, when information sellers integrate, the information monopolist internalizes the negative externality of informative certification and offers investors a more homogeneous cumulative precision and more precise investment advice at a lower price.
Download paper16:30 - 18:00
Entrepreneurial Finance ( 12/19/2024 at 16:30 to 12/19/2024 at 18:00 )
Presiding : Guosong Xu (Erasmus University Rotterdam)
Room : Room 3
Learning to Launch
Authors : Hshieh Shenje (City University of Hong Kong) ; Zheng Geoffery (NYU Shanghai)
Presenter : Geoffery Zheng (NYU Shanghai)
Discussant : Paul Beaumont (McGill University)
We document that "pedigreed" entrepreneurs, those with prior work experience at large, public firms, create startups that outperform. We employ a novel instrument based on M&As to instrument for founder pedigree and estimate the causal impact of pedigree on startup performance. We estimate that having a pedigreed founding team leads to a 3.5 percent higher likelihood of raising financing, 22.4 percent more funds raised, and a 7.8 percent higher likelihood of filing a new patent within 3 years of founding. These startups are also 6 percent more likely to be acquired within 5 years of founding. This is consistent with investors viewing the founding team’s pedigree as a signal of domain knowledge, rather than general quality.
Download paperWealth Protection in Bankruptcy and Serial Entrepreneurship
Authors : Kang Donghyun (Erasmus University Rotterdam)
Presenter : Donghyun Kang (Erasmus University Rotterdam)
Discussant : Geoffery Zheng (NYU Shanghai)
I study whether wealth protection in personal bankruptcy provides a second chance to failed entrepreneurs. I exploit windfall wealth from inheritances to proxy for exogenous variation in personal wealth after bankruptcy. Windfall wealth increases reentry to business only among entrepreneurs who did not experience severe losses in personal income or wealth before bankruptcy. Those who respond to windfall wealth by starting new businesses have lower profits, indicating their lower entrepreneurial quality. Overall, the findings suggest that bankruptcy policies increasing wealth protection can promote serial entrepreneurship, but their effectiveness is limited by low entrepreneurial quality and personal experience of severe losses.
Download paperContract Completeness of Company Bylaws and Entrepreneurial Success
Authors : Beaumont Paul (McGill University) ; Hombert Johan (HEC Paris) ; Matray Adrien (HEC Paris)
Presenter : Paul Beaumont (McGill University)
Discussant : Donghyun Kang (Erasmus University Rotterdam)
Does reducing the cost for entrepreneurs to write more complete contracts with their financiers enhance entrepreneurial success? To shed light on this question, this paper exploits a 2008 French reform that made it less costly for new firms to choose a legal form allowing more complete financial contracts in the company bylaws. Using comprehensive tax-filing data from 2004 to 2015, we find a marked increase in the adoption of that legal form among new firms, leading to higher growth in capital, labor, and revenues in the first three years after creation. The effects are more pronounced for firms with high marginal returns to capital, suggesting that capital misallocation decreases. Our findings highlight the significant role of legal and financial structures in entrepreneurial success, which has policy implications for promoting entrepreneurship.
Download paper18:00 - 19:30
Job Market Papers 2024 :
- "Assessing the Performance of AI-Managed Portfolios" by PRAXMARER Mauricio (University of Innsbruck)
- CV
- Research interests: Empirical Asset Pricing, Financial Forecasting, Asset Management, Financial Institutions,
Energy Markets
- "Gamification of Stock Trading: Losers and Winners" by YELAGIN Eduard (University of Memphis)
- CV / Personal page
- Research interests : Market Microstructure, FinTech, Cybersecurity
- "The Cross-Section of Price Efficiency" by SARU Ion Lucas (VU Amsterdam)
- CV / Personal page
- Research interests: Financial Market Microstructure, Market Liquidity, Asset Pricing, and Financial Econometrics
- "Black Box Credit Scoring and Data Sharing" by OZANNE Alessio (Toulouse School of Economics)
- CV / Personal page
- Research interests : Financial Intermediation, FinTech, Financial Market Microstructure, Informtion Design, Economics of Data
Every year, we reward the Best Conference Paper and the Best Job Market Paper.
Find below all awarded papers.
2023
- Best Paper Conference meeting "Andras FULOP (ESSEC), Junye LI (Fudan University) and Mo WANG (ESSEC), for the paper entitled "Option Mispricing and Alpha Portfolios"
- Best Job Market Paper meeting "Antoine BAENA (Banque de France and Paris Dauphine University PSL, France), for the paper entitled "Do capital requirements really reduce the riskiness of banks"
2022
- Victor LYONNET (Ohio State University) & Lea STERN (University of Washington) for the paper entitled "Venture Capital (Mis)Allocation in the Age of AI"
2021
- Dmitry KUVSHINOV (University of Pompeu Fabra) for the paper entitled "The Co Movement Puzzle"
2020
- Olivier David ZERBIB (Tilburg University (CentER) and ISFA) for the paper entitled "A Sustainable Capital Asset Pricing Model (S CAPM): Evidence from Green Investing and Sin Stock Exclusion"
2019
- Matthias EFING (HEC Paris), Harald HAU (University of Geneva & Swiss Finance Institute), Patrick KAMPKOTTER (University of Tübingen) and Jean-Charles ROCHET (University of Geneva & Swiss Finance Institute) for the paper entitled "Bank Bonus Pay as a Risk Sharing Contract"
2018
- Ye LI & Chen WANG for the paper entitled "Rediscover Predictibility: Information from the Relative Prices of Long-Term and Short-Term Dividends".
2017
- Thorsten MARTIN & Clemens A. OTTO for the paper entitled "The Effect of Hold-Up Problems on Corporate Investment: Evidence from Import Tariff Reductions".
2016
- Matthew DARST & Ehraz REFAYET for the paper entitled "Credit Default Swaps in General Equilibrium: Spillovers, Credit Spreads, and Endogenous Default".
2015
- Roberto MARFE for the paper entitled "Labor Rigidity and the Dynamics of the Value Premium
2014
- Taylor BEGLEY for the paper entitled "The Real Costs of Corporate Credit Ratings"
- Shiyang HUANGfor the paper entitled "The Effect of Options on Information Acquisition and Asset Pricing"
2013
- Clemens OTTO & Paolo VOLPIN for the paper entitled "Marking to Market and Inefficient Investment Décisions"
- Matthias EFING & Harald HAU for the paper entitled"Structured Debt Ratings: Evidence on Conflicts of Interest"
- Bart YUESHEN for the paper entitled "Queuing Uncertainty"
Registrations for the EUROFIDAI-ESSEC Paris December Finance Meeting 2024 are now open!
Click HERE to register and pay the registration fees.
Registration fees are 275€.
Registration deadline for accepted authors is September 24, 2024.
The EUROFIDAI-ESSEC Paris December 2024 Finance Meeting will take place at the Pullman Paris Montparnasse Hotel.
Location
Novotel Paris Les Halles Hotel >> MOVE TO PULLMAN PARIS MONTPARNASSE HOTEL
19 rue Commandant René Mouchotte, 75014 Paris
Special rate for participants
After your registration, if you want to get a special rate at the PULLMAN PARIS MONTPARNASSE hotel (275€ / night, including breakfast) please contact the organizing committee: conference[at]paris-december.eu.
Deadline November 17, 2024 - Within the limit of available rooms
Access
Public transportation:
Subway | Gaité (300m - 0.18 miles ) - line 13
Subway | Montparnasse Bienvenüe (200m - 0.12 miles) - line 4, 6, 12, 13
Bus | Montparnasse Bienvenüe (500m - 0.31 miles) - line 28, 39, 58, 91, 92, 94, 95, 96
Train Station | Montparnasse train station (200m - 0.12 miles)
From Roissy airport:
Public transportation | RER B and metro lines 4 or 6 (stop at Montparnasse-Bienvenüe)
From Orly airport:
Public transportation | OrlyBus to Denfert-Rochereau and metro line 6 (stop at Montparnasse-Bienvenüe)
By car: