Research Seminars

Asset Pricing with Heterogeneous Intermediaries

Economics & Decision Sciences

Speaker: François Geerolf

18 December 2018 - HEC Campus - Building T - Room T004 - From 2:00 PM to 3:15 PM - From 2:00 am to 3:15 am

I propose an asset pricing model based on heterogeneity and scarcity of financial expertise. This corporate-finance view of asset pricing has several predictions in common with intermediary-based asset pricing, but also has several distinguishing features. First, the model microfounds intermediaries’ technologies explicitly, in line with textbook models of corporate finance and financial frictions; it applies even if intermediaries are risk neutral. Second, expected returns do not just correlate with intermediaries’ wealth, but also with borrowers’ wealth, intermediaries’ heterogeneity and borrowers’ heterogeneity. Third, identical securities in the sense of Arrow-Debreu may have different prices, opening arbitrage opportunities from the econometrician’s point of view. Applications of the model to different market settings where financial expertise is key are then discussed: private equity, venture capital, syndicated loans, mutual funds. Finally, the theory is related to earlier evidence previously put forward in favor of intermediary-based asset pricing.

“Welfare Effects of Housing Transaction Taxes: A Quantitative Analysis with an Assignment Model” (joint work with Niku Määttänen)

Economics & Decision Sciences

Speaker: Marko Tervio

13 December 2018 - Building T - Room T004 - From 2:00 pm to 3:15 pm

We evaluate the welfare cost of housing transaction taxes with a new assignment model based framework, where welfare effects are driven by distortions in the matching of houses and households. We calibrate the model with data from the Helsinki metropolitan region to assess the impact of a reform where we replace an ad valorem transaction tax with a revenue equivalent property tax. The aggregate welfare gain from this reform increases rapidly with the initial transaction tax rate, with the Laffer curve peaking at about 10\%. The proportion of households that lose out from the reform is nevertheless increasing in the tax rate. We compare our model-based counterfactual aggregate welfare results with welfare calculations based on reduced-form estimates from previous policy evaluation studies; they are broadly in line, despite the latter using data from different housing markets at various levels and changes of the tax rate.

The Lost Capital Asset Pricing Model


Speaker: Julien Cujean

6 December 2018 - T104 - From 2:00 pm to 3:15 pm


A flat Securities Market Line is not evidence against the CAPM. In a rational-expectations economy in which markets are not informationally effcient, the CAPM holds but is rejected empirically (Type I Error). There exists an information gap between the empiricist and the average investor who clears the market. The CAPM holds unconditionally for the investor, but appears at to the empiricist who uses the correct unconditional market proxy. This distortion is empirically substantial and offers a new interpretation of why \Betting Against Beta" works: BAB really bets on
true beta. The empiricist retrieves a stronger CAPM on macroeconomic announcement days.

The Equilibrium Effects of Information Deletion: Evidence from Consumer Credit Markets


Speaker: Andres Liberman

29 November 2018 - T004 - From 2:00 pm to 3:15 pm


This paper exploits a large-scale natural experiment to study the equilibrium effects of information restrictions in credit markets. In 2012, Chilean credit bureaus were forced to stop reporting defaults for 2.8 million individuals (21% of the adult population). We show that the effects of information deletion on aggregate borrowing and total surplus are theoretically ambiguous and depend on the pre-deletion demand and cost curves for defaulters and non-defaulters. Using panel data on the universe of bank borrowers in Chile combined with the deleted registry information, we implement machine learning techniques to measure changes in lenders’ cost predictions following deletion. Deletion reduces (raises) predicted costs the most for poorer defaulters (non-defaulters) with limited borrowing histories. Using a difference-in-differences design, we find that individuals exposed to increases in predicted costs reduce borrowing by 6.4%, while those exposed to decreases raise borrowing by 11.8% following the deletion, for a 3.5% aggregate drop in borrowing. Using the difference-in-difference estimates as inputs into the theoretical framework, we find evidence that deletion reduced aggregate welfare under a variety of assumptions about lenders’ pricing strategies.

Weather and Death in India: Implications for Climate Change

Economics & Decision Sciences

Speaker: Olivier Deschenes

29 November 2018 - Building T - Room T004 from 2:00 pm to 3:15 pm

The industrial revolution in developing countries represents an unfinished process. Urban centers, dominated by manufacturing and services, sit alongside rural hinterlands dominated by subsistence agriculture. This paper uses a 1957-2000 district-level panel data set to test whether hot weather shocks have unequal effects on mortality in rural and urban populations in India. This depends on the degree to which incomes are affected by weather shocks and the extent to which individuals can smooth their survival across these shocks. We find that a one standard deviation increase in high temperature days in a year decreases agricultural yields and real wages by 12.6 % and 9.8 %, respectively, and increases annual mortality among rural populations by 7.3 %. By contrast, in urban areas, there is virtually no evidence of an effect on incomes and a substantially smaller increase in the mortality rate (of about 2.8% for a one standard deviation increase in high temperature days). Importantly, we find that greater availability of credit mitigates the mortality effects of high temperatures in rural areas, presumably by facilitating consumption smoothing. Finally, with all else held constant, the estimates imply that global warming will lead to meaningful reductions in life expectancy in rural India by the 2015-2029 period and quite large declines by the end of the century.

Learning When to Quit: An Empirical Model of Experimentation in Standards Development

Economics & Decision Sciences

Speaker: Emanuele Tarantino
Mannheim University

27 November 2018 - Building T - Room T015 from 2:00 pm to 3:15 pm

Motivated by a descriptive analysis of standards development within the Internet Engineering Task Force, we develop a dynamic discrete choice model of R&D that highlights the decision to continue or abandon a line of research. Our estimates imply that sixty percent of IETF proposals are publishable, but only one-third of those good ideas survive the review process. Increased attention and author experience are associated with faster learning. We simulate two counterfactual innovation policies: an R&D subsidy and a publication-prize. Subsidies have a larger impact on research output, though prizes perform better when accounting for researchers' opportunity costs.

Better Monitoring . . .Worse Productivity?


Speaker: John Zhu

22 November 2018 - T004 - From 2:00 pm to 3:15 pm


A principal privately monitors an agent's hidden efforts. The agent's contract depends on the principal's unverifiable reports of her private information. How does the quality of the principal's private monitoring affect the optimal contract and agent productivity? When monitoring generates information that is at once imprecise (weak statistical power) but sensitive to effort (strong incentive
power) the principal is unable to commit not to be too tough on the agent. Improving a well-functioning monitoring system by adding new information that is weak in statistical power but strong in incentive power can cause the optimal dynamic contract to collapse and induce zero effort.

Firm Policies and Active Ownership Investors


Speaker: Vicente Cunat

15 November 2018 - T105 - From 2:00 pm to 3:15 pm

In November 2012, Norway’s sovereign wealth fund (NBIM) unexpectedly announced that it would improve specific governance dimensions of the firms in its portfolio. We this unexpected change of preferences as a natural experiment to understand shareholder influence among active ownership investors. We first document how the fund re-balanced its portfolio to achieve this objective. We then show how firms for which the fund is very important and also firms that are very important to the fund reacted by improving their governance. Finally, we document how, marginal investment changes and governance changes became more correlated in the new equilibrium.

Information Nudges and Self-Control

Economics & Decision Sciences

Speaker: Thomas Mariotti
Toulouse School of Economics

15 November 2018 - Building T - Room T015 - From 2:00 pm to 3:15 pm

We study the optimal design of information nudges for present-biased consumers who have to make sequential consumption decisions without exact prior knowledge of their long-term consequences. For arbitrary distributions of risk, there exists a consumer-optimal information nudge that is of cutoff type, recommending consumption or abstinence according to the magnitude of the risk. Under a stronger bias for the present, the target group receiving a credible signal to abstain must be tightened. We compare this nudge with those favored by a health authority or a lobbyist. When some consumers are more strongly present-biased than others, a traffic-light nudge is optimal.

“Globalization of Quantitative Policing: Between Management and Statactivism”

Accounting & Management Control

Speaker: Emmanuel DIDIER

9 November 2018 - HEC PARIS - Room T015 - From 10:00 am to 12:00 pm

Information policing seems to be pervading public security police all around
the world. This review asks whether this appellation describes a homogeneous
set of phenomena. Compstat was the first program to massively computerize
policing. The literature reviewed here follows its fate in the United
States and, on a global scale, in France, where the program was imported.
The review successively discusses the perspective of managers who were favorable
to the program and that of “statactivists,” activists who use statistics,
who were opposed to it. Despite the many differences intervened during
the importation process, especially in the balance of expertise and publicity,
some points seem to be common to both contexts, such as the building of
a computer infrastructure, a specific use of the data, and the constructive
tensions between the police institution and its critics.