Articles

Bank Interest Rate Risk Management

G. VUILLEMEY

Management Science

Forthcoming

Departments: Finance, GREGHEC (CNRS)

Keywords: Interest rate risk; Derivatives; Bank capital structure; Hedging


Empirically, bank equity value is decreasing in the interest rate. Yet (i) manybanks do not hedge interest rate risk and (ii) above 50% of hedging banks usederivatives to increase exposure. I model a bank’s capital structure, and showthat these facts are consistent with optimal hedging under financial frictions.Novel predictions on the characteristics of banks taking long or short interest ratederivative positions are tested, and supported by the data. Therefore, banks’derivatives exposures are not necessarily evidence of excessive risk-taking, andcan be explained by hedging in the presence of frictions. More broadly, theresults challenge the view that “hedging” and “speculative” positions can beidentified using the comovement between derivatives payoffs and equity value

Banking Deregulation and The Rise in House Price Comovement

A. LANDIER, D. SRAER, D. THESMAR

Journal of Financial Economics

Forthcoming

Departments: Finance, GREGHEC (CNRS)

Keywords: Financial Integration, Comovement, House Prices

http://faculty.haas.berkeley.edu/dsraer/correlation_final.pdf


The correlation across US states in house price growth increased steadily between 1976 and 2000. This paper shows that the contemporaneous geographic integration of the US banking market, via the emergence of large banks, was a primary driver of this phenomenon. To this end, we first theoretically derive an appropriate measure of banking integration across state pairs and document that house price growth correlation is strongly related to this measure of financial integration. Our IV estimates suggest that banking integration can explain up to one fourth of the rise in house price correlation over this period

Brokers and Order Flow Leakage: Evidence from Fire Sales

A. BARBON, M. DI MAGGIO, F. FRANZONI, A. LANDIER

The Journal of Finance

Forthcoming

Departments: Finance, GREGHEC (CNRS)


Corporate Strategy, Conformism, and the Stock Market

T. FOUCAULT, L. FRESARD

Review of Financial Studies

Forthcoming

Departments: Finance, GREGHEC (CNRS)


Distracted Institutional Investors

D. SCHMIDT

Journal of Financial and Quantitative Analysis

Forthcoming

Departments: Finance

Keywords: Inattention, Institutional Investors, Trading Behavior

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2789001


We investigate how distraction affects the trading behavior of professional asset managers. Exploring detailed transaction-level data, we show that managers with a large fraction of portfolio stocks exhibiting an earnings announcement are significantly less likely to trade in other stocks, suggesting that these announcements absorb attention which is missing for the choice of which stocks to trade. Hence, attention constraints can be binding even among this elite group of traders. Finally, we identify two channels through which distraction hurts managers’ performance: distracted managers fail to close losing positions, partly explained by these managers displaying a stronger disposition effect, and incur slightly higher transaction costs


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