Paris December 2019

Thursday, 19 December, 2019 - 09:00 to 20:00
Novotel Paris les Halles Hotel, Paris



The 17th Paris December Finance Meeting is organized in downtown Paris on December 19, 2019 by EUROFIDAI (European Financial Data Institute) and ESSEC Business School with the support of AFFI (French Finance Association).

All researchers in finance are invited to present in English their latest research in all areas of finance and insurance.

A special prize for the Best Paper of the Meeting will be awarded.

In 2019, a record number of 434 papers were submitted for presentation at the meeting and only one out of 6 papers was accepted, indicating rigorous selection criteria

The Paris December Finance Meeting is one of the top 2 European conferences in terms of selectivity and the quality of the papers presented.

An international reach

In 2019, the submissions are received from :

the U.S. (86), France (63), Germany (59), the U.K. (45), Canada (29), Switzerland (25), Austria (17), the Netherlands (15), China (13), Italy (13), Sweden (10), Hong-Kong (8), Belgium (7), Norway (7), Denmark (5), Finland (4), Ireland (4), Japan (4), Republic of Korea (4), Greece (3), Spain (3), Brazil (2), Portugal (2), Kuwait (2), Singapore (2), Cyprus (1), Israel (1), Liechtenstein (1), Luxembourg (1), Russian Federation (1)


Our sponsors




2019 Scientific committee (in progress)

  • Co-President : Patrice Fontaine (EUROFIDAI, CNRS)
  • Co-President : Jocelyn Martel (ESSEC Business School)

Yacine Ait-Sahalia

Hervé Alexandre

Nihat Aktas

Charles-Olivier Amédée-Manesme

Patrick Augustin

Anne Balter

Laurent Bach

Jean-Noël Barrot

Philippe Bertrand

Romain Boulland

Marie Brière

Marie-Hélène Broihanne

Laurent Calvet

Catherine Casamatta

Georgy Chabakauri

Pierre Collin-Dufresne

Ian Cooper

Ettore Croci

Matt Darst

Eric de Bodt

François Degeorge

Olivier Dessaint

Alberta Di Giuli

Christian Dorion

Ruediger Fahlenbrach

Patrice Fontaine

Thierry Foucault

Pascal François

Andras Fulop

Roland Füess

Jean-François Gajewski

Edith Ginglinger

Peter Gruber

Alex Guembel

Georges Hübner

Julien Hugonnier

Heiko Jacobs

Sonia Jimenez

Maria Kasch

Alexandros Kostakis

Olivier Lecourtois

Jongsub Lee

Laurence Lescourret

Abraham Lioui

Elisa Luciano

Yannick Malevergne

Roberto Marfé

Jocelyn Martel

Maxime Merli

Sophie Moinas

Franck Moraux

Lorenzo Naranjo

Lars Norden

Clemens Otto

Loriana Pelizzon

Fabricio Perez

Christophe Pérignon

Joël Petey

Alberto Plazzi

Sébastien Pouget

Jean-Luc Prigent

Jean-Paul Renne

Patrick Roger

Jeroen Rombouts

Julien Sauvagnat

Olivier Scaillet

Mark Seasholes

Paolo Sodini

Ariane Szafarz

Christophe Spaenjers

Roméo Tédongap

Michael Troege

Boris Vallée

Philip Valta

Guillaume Vuillemey

Ryan Williams

Rafal Wojakowski

Alminas Zaldokas

Princeton University & NBER

Université Paris Dauphine

WHU Otto Beisheim School of Management 

Université de Laval à Québec

McGill University

Tilburg University

ESSEC Business School

MIT Sloan School of Management

Université Aix-Marseille

ESSEC Business School

Amundi, Université Paris Dauphine, Université Libre de Bruxelles

Université de Strasbourg


TSE & IEA, Université de Toulouse 1 Capitole

London School of Economics


London Business School

Universita Cattolica del Sacro Cuore

Board of Governors of the Federal Reserve 

Université de Lille 2

University of Lugano

University of Toronto

ESCP Europe

HEC Montréal



HEC Paris

HEC Montréal

ESSEC Business School

University of Saint Gallen

IAE Lyon

Université Paris-Dauphine

Universita della Svizzeria Italiana

Toulouse School of Economics

HEC Liège


University of Mannheim

Grenoble INP

Humboldt University of Berlin

University of Manchester

EM Lyon

Seoul National University

ESSEC Business School


Collegio Carlo Alberto

Université de Paris 1 Panthéon-Assas

Collegio Carlo Alberto

ESSEC Business School

Université de Strasbourg

Toulouse School of Economics

Université de Rennes 1

University of Miami


HEC Paris

Goethe University

Wilfrid Laurier University

HEC Paris

Université de Strasbourg

University of Lugano & SFI

Toulouse School of Economics

Université de Cergy-Pontoise

HEC Lausanne

Université de Strasbourg

ESSEC Business School

Bocconi University

University of Geneva & SFI

Arizona University

Stockholm School of Economics

Université Libre de Bruxelles

HEC Paris

ESSEC Business School

ESCP Europe

Harvard Business School

University of Bern

HEC Paris

University of Arizona

Surrey Business School




Call for papers

The 17th Paris December Finance Meeting is organized in downtown Paris on December 19, 2019 by EUROFIDAI (European Financial Data Institute) and ESSEC Business School.

It is jointly sponsored by Amundi / Ardian / CDC Institute for Economic Research / CERESSEC / Chaire FINTECH (Paris Dauphine) / Equipex BEDOFIH project (European high frequency financial database) / Fondation Banque de France in Money, Finance and Banking / Morgan Stanley / «Regulation and Systemic Risk» ACPR Chair.

All researchers in finance are invited to present in English their latest research in all areas of finance and insurance. Job market and PhD papers are welcomed.

In recent years, one in five submitted papers was accepted. The Paris December Finance Meeting is one of the top 2 European conferences in terms of selectivity and the quality of the papers presented.

Prizes will be awarded for the best conference papers and for the best papers using BEDOFIH and EUROFIDAI data.


Only online submissions will be considered for the 2019 Paris December Finance Meeting. Before filling the application form, please 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), without the acknowledgements and without 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 you will fill in the submission form is limited to 150 words.
  • To complete your submission you will have to classify your paper using 3 keywords among the following : Asset Pricing, Banking Regulation and Systemic Risk, Banking/Financial Intermediation, Bankruptcy, Behavioral Finance, Capital Structure, Corporate Finance, Corporate Governance, Derivatives, Ethical Finance, Financial Crisis, Financial Econometrics, Financial Mathematics, Financial Risks, FinTech and Cryptocurrencies, Hedge Funds/Mutual Funds, Historical Finance, Insurance, Interest Rates, International Finance, Investment Policy/Capital Budgeting, Market Microstructure/Liquidity, Merger and Acquisition, Ownership, Payout Policy, Portfolio Management, Private Equity/Venture Capital, Product Market Relationships, Real Estate, Risk Management, Security Issuance/IPO. This choice will define the session referees judging your paper.
  • Each submission will be charged 45€.

Click on the "Submission" tab to access online submissions.


Papers must be submitted online by June 4, 2019.


Accepted papers will be posted on the Financial Economic Network (SSRN) and the website of the conference.



Only online submissions will be considered for the 2019 Paris December Finance Meeting.



Submissions are closed.


Submission fees

45 euros


Papers must be submitted online by June 4, 2019.

Paper diffusion

Accepted papers will be posted on the Financial Economic Network (SSRN) and the website of the conference.


You can consult the section "Previous meetings" to get an overview of previous programs.

Show all sessions
Planning from December 19, Thursday

WELCOME & REGISTRATION (12/19/2019 at 08:30)

Corporate Finance 1 (12/19/2019 at 09:00)

Presiding : Andrej Gill (Gutenberg University Mainz)

Shareholder Illiquidity and Firm Behavior: Financial and Real Effects of the Personal Wealth Tax in Private Firms

Authors : Stacescu Bogdan (BI Norwegian Business School); Bøhren Øyvind (BI Norwegian Business School); Berzins Janis (BI Norwegian Business School)

Presenter: Stacescu Bogdan (BI Norwegian Business School)

Discussant: Yegen Eyub (University of Tonroto)

We examine how liquidity shocks to shareholders propagate to firms. Analyzing regulatory shocks to personal wealth taxation in Norway, we show that higher taxes on residential real estate for a private firm’s controlling shareholder are associated with higher dividend and salary payments from the firm to the shareholder, lower cash holdings in the firm, and lower firm growth. A one percentage-point increase in the shareholder’s wealth-tax-to-liquid-assets ratio is on average followed by a half percentage-point increase in the dividends-to-earnings ratio and a half percentage-point decrease in sales growth. These findings suggest that shareholder liquidity has causal effects on firm behavior.

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Common-Ownership and Portfolio Rebalancing

Authors : Yegen Eyub (University of Toronto, Rotman School of Management)

Presenter: Yegen Eyub (University of Toronto, Rotman School of Management)

Discussant: Stacescu Bodgan (BI Norwegian Business School)

The empirical literature on the potential collusive effects of common-ownership relies heavily on financial institution mergers to make causal inferences. I find that more than 85% of newly-formed common-ownership relationships due to such financial institution mergers are no longer commonly-held by the acquiring institution during the post-merger period (with most being liquidated in the first quarter following the merger). Firms that are no longer commonly-held by the merged institution drive the anti-competitive results found in previous studies. The fact that portfolio firms are so quickly rebalanced casts doubt on the utility of financial institution mergers as a natural experiment. I also find evidence that portfolio rebalancing post-merger is driven by other factors, such as portfolio diversification or index tracking. Further, I find no significant positive risk-adjusted returns for a common-ownership based portfolio strategy, suggesting that investors do not make a profit from commonly-held stocks. Taken together, these findings suggest that empirical basis for claiming collusive effects of common-ownership is weaker than it appears and there is no strong evidence that provides a basis for policy concerns about institutional common-ownership.

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Risk Management (12/19/2019 at 09:00)

Presiding : Yannick Malevergne (University Paris 1 - Sorbonne)

Model Risk and Disappointment Aversion

Authors : Fallahgoul Hasan (Monash University); Mancini Loriano (Swiss Finance Institute and USI); Stoyanov Stoyan (Stony Brook University)

Presenter: Fallahgoul Hasan (Monash University)

Discussant: Dimpoulos Theodosios (HEC Lausanne)

Extensions of utility functions sensitive to the tail behavior of the portfolio return distribution may not be approximated reliably through higher-order moment expansions and require specifying a complete distribution. This, however, implies that an optimal allocation can be adversely influenced by an incorrect distribution specification. We develop a novel approach for model risk assessment based on a projection method which is applied to portfolio construction. In an out-of-sample empirical study, we find that the marginal utility gains of the optimal portfolio of a generalized disappointment aversion investor are remarkably robust to misspecifications in the marginal distributions but are very sensitive to the structural assumption of stock returns implemented through a factor model.

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Climate Change and Adaptation in Global Supply-Chain Networks

Authors : Schiller Christoph (University of Toronto, Rotman School of Management); Pankratz Nora (Maastricht University)

Presenter: Schiller Christoph (University of Toronto, Rotman School of Management)

Discussant: Fallahgoul Hasan (Monash University)

This paper examines how firms adapt to climate-change risks resulting from their supply-chain networks. Combining a large sample of global supplier-customer relationships with granular data on local temperatures and flooding incidents, we first document that the occurrence of climate shocks at affected supplier firms has both a large direct and indirect negative effect on earnings and revenues of suppliers and their customers. Second, we show that customers are 10% to 20% more likely to terminate existing supplier-relationships when realized climate shocks at the supplier firms exceed ex-ante expected climate shocks. Further, customers subsequently switch to suppliers with lower heatwave and flooding exposure. Our results indicate that climate change affects the formation of global production networks.

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Self-Inflicted Debt Crises

Authors : Dimopoulos Theodosios (HEC Lausanne/ UNIL); Schürhoff Norman (HEC Lausanne/ Swiss Finance Institute)

Presenter: Dimopoulos Theodosios (HEC Lausanne/ UNIL)

Discussant: Schiller Christoph (University of Toronto)

In a dynamic model of optimal bailouts, we show how borrower myopia affects the severity of debt
crises and the pricing of credit risk. Myopic borrowers misprice the option to default with a Ushaped
negative pricing error. The myopia discount changes default incentives, bailout policies,
and credit spreads. Optimal bailouts punish myopia when the distortions from default mispricing
outweigh future bailout costs, but reward myopia otherwise. The model explains why (i) defaults
get procrastinated and debt crises protracted, (ii) credit spread dynamics are more asymmetric for
lower-quality borrowers, (iii) default can be cheaper to resolve for lower-quality borrowers, and (iv)
countries can bene t from populist governments.

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Behavioral Finance 1 (12/19/2019 at 09:00)

Presiding : Yakup Eser Arisoy (NEOMA Business School)

Reference Points in Refinancing Decisions

Authors : Gianinazzi Virginia (Swiss Finance Institute and USI Lugano)

Presenter: Gianinazzi Virginia (Swiss Finance Institute and USI Lugano)

Discussant: Liu Clark (Tsinghua University)

This paper shows that households' mortgage refinancing decisions suboptimally de-
pend on uninformative reference points, imposing a friction to the refinancing channel of
monetary policy. I study refinancing behavior in the UK, where on pre-determined dates
initial fixed rates reset and mortgagors automatically move onto a reversion rate above
market rates. A borrower's expired fixed rate determines whether failing to refinance is
perceived as a loss or as a gain, thus serving as a salient reference point. I find that
borrowers for whom inaction implies a relative gain refinance on average 13.4% less than
borrowers who face a loss. This evidence is at odds with optimal models of refinancing
since future borrowing costs are unrelated to past rates.

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Do Incentives Contracts Lead to Higher Risk-taking ? The Impact of Executives' Characteristics

Authors : Gajewski Jean-François (Université de Lyon, Jean Moulin, iaelyon Magellan); Desmoulins-Lebeault François (GEM); Meunier Luc (ESSCA)

Presenter: Gajewski Jean-François (Université de Lyon, Jean Moulin, iaelyon Magellan)

Discussant: Gianinazzi Virginia (Swiss Finance Institute and USI Lugano)

Stock-option compensation is coherent with the principle of agency theory, by encouraging risk averse executives to take a more risk neu- tral stance. However, it is unclear whether the contract is actually more powerful than personal characteristics in shaping decision-making. We compare experimentally the risk aversion and prudence of 100 par- ticipants under a stock-option incentive contract and a classic equity granting one. We measure a number of personality variables, as well as cortisol and testosterone levels, which have been related to risk taking in previous studies. We rst underline that stock-options contract in- deed drives more risk neutral behaviour, both regarding variance and skewness. This e ect is mainly driven by a shift in focus from losses to gains. Loss aversion and higher cortisol levels were linked to a prefer- ence for the safer equity contract. Second, we show that cortisol and testosterone levels are linked to preferences for variance and skewness, often in a quadratic fashion. Third, we show that this impact is actually stronger than the one of the contract, both in terms of predictive power and economic e ect. Therefore, our study highlights the impact of per- sonality and even biological variables on risk taking, and underline the need for a behavioural approach of contract setting.

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Life is Too Short? Bereaved Managers and Investment Decisions

Authors : Liu Clark (PBC School of Finance, Tsinghua University); Shu Tao (Terry College of Business, University of Georgia); Sulaeman Johan (NUS Business School,National University of Singapore); Yeung P. Eric (Johnson Graduate School of Management, Cornell University)

Presenter: Liu Clark (PBC School of Finance, Tsinghua University)

Discussant: Meunier Luc (ESSCA)

We examine whether bereavement affects managerial investment decisions. In separate samples of mutual funds and publicly traded firms, we find managers take less risk after deaths in the family. Mutual funds managed by bereaved managers exhibit smaller tracking errors, lower active share measures, and higher portfolio weights on larger stocks after bereavement events. Firms managed by bereaved CEOs exhibit lower capital expenditures, fewer acquisitions, and lower CEO ownerships after bereavement events. These long-term effects cannot be explained merely by short-term distraction. The risk-shifting patterns of bereaved managers have negative implications on the performance of mutual funds and firms they manage.

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Asset Pricing 1 (12/19/2019 at 09:00)

Presiding : Abraham Lioui (EDHEC)

Heterogeneous Preferences and Asset Prices under Endogenously Incomplete Markets

Authors : Luo Ding (City University of Hong Kong)

Presenter: Luo Ding (City University of Hong Kong)

Discussant: Sun Yulong (Bocconi University)

I study how heterogeneous preferences (heterogeneity in risk aversion and time discount factor) affect asset prices and risk sharing in endowment economy, when financial markets are endogenously incomplete due to the contracting friction of limited enforcement. I find that heterogeneous preferences lead to more conditional variation in the stochastic discount factor (SDF), which results in a higher and more volatile equity premium. In contrast to the standard findings under heterogeneous preferences, the long run distribution of agents’ consumption is stationary and nondegenerate, because limited enforcement entitles the agents to the option of autarky for all times.

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Prices and Returns: What Is the Role of Inflation?

Authors : Sun Yulong (Bocconi University)

Presenter: Sun Yulong (Bocconi University)

Discussant: Crosby John (University of Maryland)

We document that both the dividend yield and earnings yield can predict the future inflation across advanced economies. The inflation predictability reinforces the return predictability and reduces the dividend growth predictability and we show both discount rates and cash flows play important roles in determining prices. We test three hypothesis related to future growth prospect, risk aversion and behavior bias to justify the positive correlation among inflation and dividend (earnings) yields. Evidence suggests that high expected inflation has tended to coincide with periods of lower real economic growth and higher discount rates which lead to the drop in today's prices. To rationalize the inflation predictability, we develop and estimate a long-run risk model featuring inflation non-neutrality. The estimated model can reproduce both the inflation predictability and the documented asset pricing facts.

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Cross-Currency Consistency, Three-Part SDF Factorizations, and an Impossibility Theorem for the Stationarity of Exchange Rates in International Economies

Authors : Crosby John (University of Maryland); Bakshi Gurdip (Fox School of Business, Temple University)

Presenter: Crosby John (University of Maryland)

Discussant: Luo Ding (City University of Hong Kong)

We consider an incomplete markets international economy in discrete-time. The first result is an impossibility theorem showing that if cross-currency no-arbitrage is to hold, the exchange rate cannot be a stationary process in levels. The second result is a system of stochastic discount factor (SDF) factorizations that enforce no-arbitrage in international economies. For example, the domestic SDF admits a new three-part multiplicative factorization: the inverse of (gross) exchange rate growth, a martingale, and a non-martingale component which is the reciprocal of the gross return of the foreign long-term bond. Examples and empirical work showcase our theoretical characterizations and economic insights.

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Interest Rates (12/19/2019 at 09:00)

Presiding : Hugues Langlois (HEC Paris)

Liquidity Risk and Funding Cost

Authors : Bechtel Alexander (University of St. Gallen); Ranaldo Angelo (University of St. Gallen); Wrampelmeyer Jan (VU Amsterdam)

Presenter: Bechtel Alexander (University of St. Gallen)

Discussant: Renne Jean-Paul (University of Lausanne)

We propose and test a new channel that links funding liquidity risk and interest rates in short-term funding markets. Borrowers with high liquidity risk are willing to pay a markup to lock in their funding, independent of risk premiums demanded by lenders. We test the channel using unique trade-by-trade data and reveal systematic and persistent differences in borrowers' funding liquidity risk that lead to systematic and persistent heterogeneity in funding costs. Our results have important implications for financial stability, the transmission of monetary policy, and banks' asset and liability management.

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Dissecting the Yield Curve: the International Evidence

Authors : Berardi Andrea (University of Venice); Plazzi Alberto (Università Svizzera Italiana)

Presenter: Plazzi Alberto (Università Svizzera Italiana)

Discussant: Bechtel Alexander (University of St Gallen)

Using a stochastic volatility affine term structure model, we explicitly consider the interrelation between yield curves and macro and volatility factors. We provide estimates of short rate expectations, term premium and convexity of nominal yields and for their real and inflation components for four different currency areas: US, Euro Area, UK, and Japan. We find that in all areas there are non-negligible convexity effects in correspondence with high volatility periods, and that term premium and convexity explain a significant proportion of the dynamics at the long end of the yield curve. Using panel regressions, we show that, overall, short rate expectations are procyclical while term premia exhibit a countercyclical behaviour and tend to increase with yield volatility. We also detect strong cross-country co-movements both in short rate expectations and term premia, with the degree of connectedness exhibiting significant time variation.

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Fiscal Limits and Sovereign Credit Spreads

Authors : Renne Jean-Paul (University of Lausanne); Pallara Kevin (University of Lausanne);

Presenter: Renne Jean-Paul (University of Lausanne)

Discussant: Plazzi Alberto (Universita Svizzera Italiana)

This paper presents a novel sovereign-credit-risk model aimed at extracting information from the term structure of credit spreads. At the heart of the model lies the fiscal limit, defined as the maximum outstanding debt that can credibly be covered by future government budget surpluses. By predicting how sovereign credit default swaps (CDS) react to changes in fiscal limit expectations, our model allows to back out such expectations from market data. The fiscal limit estimates feature substantial time-variation, between $100\%$ and $300\%$ of GDP. Our results allow us to quantify the non-linear relationship between credit spreads and the fiscal space. Moreover, we obtain sizeable estimates of sovereign credit risk premiums -- that are those components of sovereign spreads that would not exist if agents were risk-neutral.

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Banking and Financial Intermediation 1 (12/19/2019 at 09:00)

Presiding : Joel Petey (University of Strasbourg)

Nonbanks, Banks, and Monetary Policy: U.S. Loan-Level Evidence since the 1990s

Authors : Meisenzahl Ralf (Federal Reserve Bank of Chicago); Elliott David (Bank of England); Peydro Jose-Luis (Imperial College London, ICREA-Universitat Pompeu Fabra, CREI, Barcelona GSE, and CEPR); Turner Bryce (Federal Reserve Board)

Presenter: Elliott David (Bank of England)

Discussant: Raina Sahil (University of Alberta)

We analyze the effects of monetary policy on nonbank and bank credit supply to firms and households, in particular the associated real effects and the distribution of risk. For identification, we use exhaustive loan-level data since the 1990s and Gertler-Karadi (2015) monetary policy shocks. First, different from the literature showing that low monetary policy rates increase risk-taking in bank loans, we find that higher monetary policy rates lead to an expansion of credit supply and more risk-taking by nonbank lenders. During monetary contractions, credit supply for corporates, mortgages, and consumers shifts from regulated banks to less regulated, more fragile nonbanks. Moreover, this shift is more pronounced for ex-ante riskier borrowers. Second, nonbanks reduce the effectiveness of the bank lending channel of monetary policy at the loan-level. However, this reduction varies substantially by borrower type. Total credit and real effects are largely neutralized in consumer loans and the associated consumption, but not in corporate loans and investment.

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Trading Credit (Subsidies) for Votes: The Effect of Local Politics on Small Business Lending

Authors : Xu Sheng-Jun (University of Alberta); Raina Sahil (University of Alberta)

Presenter: Raina Sahil (University of Alberta)

Discussant: Yannelis Constantine (University of Chicago)

Small businesses are championed by politicians looking to win votes, but face significant credit constraints that limit their growth. We study how the competitiveness of congressional elections affects government subsidies to small business lending. To identify the causal impact of electoral competitiveness, we examine politically-motivated congressional redistricting ("gerrymandering") and exploit the discontinuity in post-redistricting electoral competitiveness between districts where redistricting party incumbents narrowly won and narrowly lost the pre-redistricting election. We find that districts with electorally vulnerable congressional representatives receive larger Small Business Administration (SBA) loan guarantees than districts with more entrenched representatives, and this leads to higher growth in local employment and wages in the short run. The gains in employment and wages disappear in the long run, and is accompanied by a decline in the number of business establishments. Overall, our results suggest that politically-motivated credit subsidies to small businesses can provide short-term economic benefits, but may distort local credit markets in the long run.

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Loan Guarantees and Credit Supply

Authors : Yannelis Constantine (University of Chicago); Bachas Natalie (Princeton University); Kim Olivia (MIT)

Presenter: Yannelis Constantine (University of Chicago)

Discussant: Elliott David (Bank of England)

The efficiency of federal lending guarantees depends on whether guarantees increase lend- ing supply, or simply act as a subsidy to lenders. We use notches in the guarantee rate schedule for loans backed by the Small Business Administration to estimate the elasticity of bank lend- ing volume to loan guarantees. We document significant bunching in the loan distribution on the side of the size threshold that carries a more generous loan guarantee. The excess mass implies that increasing guarantee generosity by 1 percentage point of loan principal would increase per-loan lending volume by $19,000. Bank lending is responsive both in the cross- section and in the time-series - excess mass increases with the guarantee discontinuity, and placebo results indicate that the effect disappears when the guarantee notch is eliminated.

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COFFEE BREAK (12/19/2019 at 10:30)

Corporate Governance 1 (12/19/2019 at 11:00)

Presiding : Ettore Croci (Unversita Cattolica del Sacro Cuore)

Encouraging long-term shareholders: The effects of loyalty shares with double voting rights

Authors : Belot François (Université de Cergy-Pontoise); Ginglinger Edith (Université Paris-Dauphine, PSL Research University); Starks Laura T. (University of Texas at Austin)

Presenter: Ginglinger Edith (Université Paris-Dauphine, PSL Research University)

Discussant: Young Michael (University of Virginia)

The 2014 passage of the Florange Act in France changed an opt-in provision for loyalty shares (allocating a second voting right for shares held at least two years) to an opt-out provision with shareholder approval. We find that before 2014, loyalty shares were popular among small family firms. Following the Act, firms with a one share – one vote structure that announced they would opt out of the law incurred a negative market reaction, suggesting that shareholders have a positive perception of loyalty shares. It appears that by encouraging costly monitoring by long-term shareholders, loyalty shares can potentially benefit all shareholders.

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Phantom of the Opera: ETFs and Shareholder Voting

Authors : Karakaş Oğuzhan (Cambridge Judge Business School); Evans Richard (University of Virginia, Darden School of Business); Moussawi Rabih (Villanova University, School of Business); Young Michael (University of Virginia, Darden School of Business)

Presenter: Young Michael (University of Virginia, Darden School of Business)

Discussant: Thai Trang (SUNY Brockport)

The short-selling of exchange-traded funds (ETFs) creates "phantom" ETF shares with cash flows rights but no associated voting rights. Both regular and phantom ETF shares trade at ETF market prices. However, while regular shares are backed by the underlying securities of the ETF and voted as directed by the sponsor, phantom shares are backed by collateral that is not voted. Introducing a novel measure of phantom shares both of the ETF and corresponding underlying securities, we find that increases in phantom shares are associated with (i) decreases in number of proxy votes cast (for and against), (ii) increases in broker non-votes, and (iii) increases in the vote premium over the voting record date for important votes for the underlying stocks of the ETF. Consistent with poor governance, firms with the highest proportion of phantom shares underperform.

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Product Market Competition and Corporate Cash Holdings: A Cross-Country Evidence

Authors : Thai Trang (SUNY Brockport); Sanjiv Sabherwal (The University of Texas at Arlington)

Presenter: Thai Trang (SUNY Brockport)

Discussant: Ginglinger Edith (University Paris-Dauphine)

From a mixed sample of developed and emerging economies, this study documents a positive relationship between product market competition and corporate cash holdings, using a new composite measure of competition that complements existing proxies in two ways: it is likely the first to captures all three horizontal dimensions of product pricing power, and, the accounting data-based construction facilitates the computation of competition for non-U.S. firms. The positive association between competition and liquidity is influenced by various firm- and country-level factors. Specifically, competition-driven cash stockpile is lower when the firms are more dependent on external financing, more financially constrained, or located in countries with stronger investor protection. Across countries, this cash hoarding behavior is strengthened in developed equity markets but weakened in developed credit markets. Overall, the role of product market competition as a global driver of corporate cash holdings is statistically positive and economically significant after many robustness checks.

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Ethical Finance (12/19/2019 at 11:00)

Presiding : Jocelyn Martel (ESSEC Business School)

(In)Credibly Green: Which Bonds Trade at a Green Bond Premium?

Authors : Kapraun Julia (Goethe university Frankfurt); Christopher Scheins (Goethe University Frankfurt)

Presenter: Kapraun Julia (Goethe university Frankfurt)

Discussant: Briere Marie (Amundi, Paris-Dauphine University)

The most important determinant for the existence of a Green premium is the perceived "Green-credibility" of the corresponding bond and its issuer. We analyze a large sample of more than 1,500 Green bonds with respect to their pricing on the primary and secondary market. On both markets, only certain types of Green bonds trade at a Green premium (i.e., exhibit lower yields) relative to their conventional counterparts, namely those, which are issued by governments or supranational entities, denominated in EUR or USD, or corporate bonds with very large issue sizes. These bonds and their issuers might be viewed as more credible in terms of a better implementation or a greater impact of the financed Green project. For corporate issues, credibility of the Green label reveals to be of particular importance. Investors are more likely to consider a corporate bond as Green, i.e., be willing to pay a premium for it, when the bond is certified as such by a third party, or when the bond is listed on an exchange with a dedicated Green bond segment and tight listing requirements. 

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The Information Value of Corporate Social Responsibility

Authors : Oh Ji Yeol Jimmy (Hanyang University); John Kose (New York University); Lee Jongsub (Seoul National University)

Presenter: Oh Ji Yeol Jimmy (Hanyang University)

Discussant: Kapraun Julia (Goethe University Frankfurt)

Using a simple cheap-talk game, we theoretically demonstrate that corporate social responsibility (CSR) helps mitigate the CEO-board information asymmetry, leading to more informed advising and monitoring by the board. By optimally engaging in CSR, the board can take advantage of stakeholder-induced information revelation and reduce its informational dependence on the CEO, which enables the shareholders to choose an ex ante higher level of board independence. For a sample of U.S. firms between 1999 and 2013, we find strong support for this strategic complementarity between board in-dependence and the information value of CSR. Our results highlight a novel rationale for CSR – the information motive.

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Do Universal Owners Vote to Curb Negative Corporate Externalities? An Empirical Analysis of Shareholder Meetings

Authors : Brière Marie (Amundi, Paris Dauphine University); Pouget Sébastien (Toulouse School of Economics); Ureche-Rangau Loredana (University of Picardie Jules Verne)

Presenter: Brière Marie (Amundi, Paris Dauphine University)

Discussant: Oh Ji Yeol Jimmy (Hanyang University)

This paper tests whether very diversified and patient investors, also known as universal owners, tend to vote in favor of shareholder resolutions instructing corporations to reduce or communicate on the negative externalities they produce. Our sample includes 213 US fund families that voted on 13,108 different shareholder resolutions at 2,352 companies over the period from 2013 to 2016. We find that, contrary to the common ownership logic, universal owners’ support for issues related to externalities is lower than the one of otherwise similar fund families. Instead, support is positively associated with the proportion of socially responsible investment funds in the family. We discuss various practical implications of our results.

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Asset Pricing 2 (12/19/2019 at 11:00)

Presiding : Jean-Paul Renne (University of Lausanne)

Compound Returns

Authors : Farago Adam (University of Gothenburg); Hjalmarsson Erik (University of Gothenburg);

Presenter: Farago Adam (University of Gothenburg)

Discussant: Bossaerts Peter (University of Melbourne)

We provide a theoretical basis for understanding the properties of compound returns. At long horizons, multiplicative compounding induces extreme positive skewness into individual stock returns, an effect primarily driven by single-period volatility. As a consequence, most individual stocks perform very poorly. However, holding just a few stocks (instead of a single one) greatly improves the long-run prospects of an investment strategy, indicating that missing out on the "lucky few" winner stocks is not a great concern. We show analytically how this somewhat counterintuitive result arises from an interaction between compounding, diversification, and rebalancing that has seemingly not been previously noted.

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Asset Pricing under Computational Complexity

Authors : Fattinger Felix (University of Melbourne); Bossaerts Peter (University of Melbourne); Bowman Elizabeth (University of Melbourne); Murawski Carsten (University of Melbourne)

Presenter: Bossaerts Peter (University of Melbourne)

Discussant: Lorenz Fiedrich (University of Münster)

We study how markets solve the standard but computationally hard problem of maximizing utility subject to a budget constraint in the face of indivisibilities. In a first experiment with complete markets, we test whether prices fully reveal the solution. We find that complete markets are fairly ineffective, and that quality decreases with instance complexity using a metric suggested in the theory of computation. Still, participants use information in prices and volume to improve their choices. In a second experiment, inspired by the theory of oracles in computer science, we show that a reduction to only one carefully chosen traded asset dramatically improves price quality and information dispersion. Our analysis provides a formalization of Hayek's ideas about the transmission of knowledge in societies through markets (Hayek, 1945). Ours is fundamentally different from the noisy rational expectations asset pricing model proposed in Grossman (1976, 1981), i.e., it does not appeal to mathematical statistics, but to the theory of computation.

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Downside Risks and the Price of Variance Uncertainty

Authors : Lorenz Friedrich (University of Münster); Schumacher Malte (University of Zurich)

Presenter: Lorenz Friedrich (University of Münster)

Discussant: Farago Adam (University of Gothenburg)

This paper studies the role of generalized disappointment aversion (GDA) in reconciling several asset-pricing puzzles in models of long-run risks. To fully capture the nonlinearities introduced by these preferences, we solve the model globally with projection. This allows us to scrutinize the channels through which GDA unfolds. A key feature of our calibrated model is the significant wedge GDA drives between the physical and the risk-neutral measure. The model captures not only the size of the variance risk premium (VRP), but also the humpshaped predictability pattern and the prominent role of downside risks for the VRP and its predictive power.

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Banking Regulation & Systemic Risk (ACPR Chair) (12/19/2019 at 11:00)

Presiding : Christophe Pérignon (HEC Paris)

Quality versus Quantity: the case of U.S. bank capital buffers

Authors : Williams Barry (Monash University); Kiefer de Silva Kiefer (Monash University); Shrimal Perera Shrimal (Monash University)

Presenter: Williams Barry (Monash University)

Discussant: Schmidt Christian (University of Mannheim)

We find that larger US bank holding companies (BHCs) hold lower quality capital buffers than their smaller peers. US BHCs’ capital buffer quality is found to be a function of their operational complexity, risk-weighted assets and profitability. We, however, find no evidence that large US BHCs trade–off capital buffer quality with their liquid asset investments. On average, US BHCs narrow the gap between their actual and target buffer quality by 49.5 per cent per quarter. This (buffer quality) adjustment speed, however, is substantially faster than that observed in pre-GFC US studies of buffer size. The well capitalised US BHCs (top 20 percent) adjust their buffer quality 8 percent faster than poorly capitalised ones. The latter seem to face impediments in raising new capital due to higher reputation costs. The costs of adjusting buffers also seem an important explanation for holding higher quality buffers. Our results shed more light on the trade-offs associated with banks holding higher quality capital buffers.

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European Stress Tests and Banks' Risk-Taking

Authors : Liang Ying (Monash Business School)

Presenter: Liang Ying (Monash Business School)

Discussant: Williams Barry (Monash University)

I investigate how the 2011 and 2014 EU stress tests affect the risk-taking of European banks. I document a non-monotonic relationship between banks' risk-shifting resulting from regulatory arbitrage and the tightness of their capital constraint (i.e., the distance between their ex-ante capital ratio and the regulatory level): banks with capital ratios marginally above the regulatory level do more regulatory arbitrage than banks with a level of capital ratio significantly below or above the regulatory level. I also study the indirect effect of the tests on the financing costs of banks which are excluded from the tests: their financing costs on the corporate bond market increase with the level of negative information released in the country in which they are located.

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Bank Leverage, Capital Requirements and the Implied Cost of (Equity) Capital

Authors : Schmidt Christian (University of Mannheim)

Presenter: Schmidt Christian (University of Mannheim)

Discussant: Liang Ying (Monash Business School)

Do heightened capital requirements impose private costs on banks by adversely affecting cost of capital (CoC)? And if so, does the effect differ across different groups of banks? Using an international sample of listed banks from 1990 to 2017, I find that equity investors adjust their expected return weakly in accordance with the MM-Theorem. The adjustment is stronger for smaller banks, banks that rely more on deposit financing and when debt is reduced rather than deposits. In any case, the adjustment is not strong enough to keep banks’ CoC constant which is estimated to increase by 10 to 40bps (a relative increase of 2.8% to 12.6%), when shifting equity from 8% to 16%. When using the 2011 EBA capital exercise as a quasi-natural experiment, results indicate a strong reduction in required returns for treated banks. However, the reduction is mainly caused by shifts in asset risk, highlighting the importance of differentiating between short-run and long-run effects.

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Market Microstructure 1 (BEDOFIH) (12/19/2019 at 11:00)

Presiding : Patrice Fontaine (Eurofidai, CNRS)

Information Environments and High Price Impact Trades: Implication for Volatility and Price Efficiency

Authors : Zhou Xiaozhou (Faculty of Management (ESG), University of Quebec at Montreal); Dionne Georges (Canada Research Chair in Risk Management and HEC Montréal)

Presenter: Zhou Xiaozhou (Faculty of Management (ESG), University of Quebec at Montreal)

Discussant: Yuferova Darya (Norwegian School of Economics)

Using the high-frequency transaction and Limit Order Book (LOB) data, we propose a new way, augmented by LOB matchedness, to identify High Price Impact Trades (HPITs), which are associated with disproportionately large price changes relative to their proportion of volume. We find that a higher presence of HPITs leads to a decline in volatility due to more contrarian trades against uninformed traders, but this decline varies with information environments and liquidity levels. Further, we show that more HPITs lead to higher price efficiency for stocks with greater public disclosure and higher liquidity. Our empirical results provide evidence that HPITs mainly reflect fundamental-based information in a high public information environment and belief-based information in a low public information environment.

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Paying for Market Liquidity: Competition and Incentives

Authors : Yuferova Darya (Norwegian School of Economics); Bellia Mario ( JRC Joint Research Center - European Commission); Pelizzon Loriana (SAFE-Goethe University); Subrahmanyam Marti (NYU Stern)

Presenter: Yuferova Darya (Norwegian School of Economics)

Discussant: Metais Carole (Institut Europlace de Finance)

Do competition and incentives offered to designated market makers (DMMs) improve market liquidity? Using data from NYSE Euronext Paris, we show that an exogenous increase in competition among DMMs leads to a significant decrease in quoted and effective spreads, mainly through a reduction in adverse selection costs. In contrast, changes in incentives, through small changes in rebates and requirements for DMMs, do not have any tangible effect on market liquidity. Our results are of relevance for designing optimal contracts between exchanges and DMMs and for regulatory market oversight.

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Order Placement Strategies in High-Frequency Markets

Authors : Metais Carole (Institut Europlace de Finance)

Presenter: Metais Carole (Institut Europlace de Finance)

Discussant: Zhou Xiaozhou (University of Quebec at Montreal)

I analyze order placement strategies by high-frequency traders (HFT) and non-HFT on Euronext Paris. Virtually all orders are limit orders submitted by fast traders, in most cases acting as market makers. Fast traders display high limit to market order ratios and their orders have lower fill rates, higher cancellation rates, and shorter lifetime than non-HFT orders. Liquidity taking orders are less costly for HFT than non-HFT whereas liquidity supplying orders are cheaper for non-HFT than HFT. As volatility rises, the ratio of limit order to market orders increases (decreases) for fast (slow) traders but fast traders become more conservative in their limit order submissions.

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Porfolio Management 1 (AMUNDI) (12/19/2019 at 11:00)

Presiding : Philippe Bertrand (University of Aix-Marseille)

Mental Accounts with Horizon and Asymmetry Preferences

Authors : Lejeune Thomas (National Bank of Belgium); Hübner Georges (HEC-Université de Liège)

Presenter: Lejeune Thomas (National Bank of Belgium)

Discussant: Kang Namho (Bentley University)

The paper extends the mental accounting framework with investors’ horizon and asymmetric trade-off between extreme gains and losses. This Horizon-Asymmetry Mental Accounting (HAMA) framework considerably widens the spectrum of investors’ optimal portfolio choices. Risk aversion and the bond-to-stock ratio decline with investment horizon. Investors who care much about upside potential hold less diversified portfolios. We develop a parsimonious semi-parametric version of the model that only relies on the moments of the returns distributions. It is flexible enough to nest portfolios allocations resulting from prominent parametric frameworks such as the linear-exponential and the flexible three-parameter (FTP) classes of utility functions.

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Slow Arbitrage: Fund Flows and Mispricing in the Frequency Domain

Authors : Kang Namho (Bentley University); Dong Xi (Baruch College, City University of New York); Peress Joel (INSEAD)

Presenter: Kang Namho (Bentley University)

Discussant: Zoican Marius (University of Toronto)

We conduct a spectral analysis of the relation between fund flows and mispricing. Hedge funds and mutual
funds both behave as low-pass filters, deploying high-frequency flows toward low-frequency mispricing.
But hedge funds attenuate high-frequency flows more than do mutual funds, thus improving market
efficiency 2 to 7 times more slowly than mutual funds worsen efficiency. Time-series and cross-sectional
tests indicate that risk, limited access to capital, and implementation costs explain why hedge funds behave
as low-pass filters. We propose a model to rationalize these results, which highlight the frequencydependent
effects of (especially arbitrage) capital on market efficiency.

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Crowded Analyst Coverage

Authors : Zoican Marius (University of Toronto); Martineau Charles (University of Toronto)

Presenter: Zoican Marius (University of Toronto)

Discussant: Lejeune Thomas (National Bank of Belgium)

Analyst stock coverage is ``crowded:'' the most-covered 5% U.S. equities amount to 25% of earnings forecasts. Coverage clustering persists after controlling for firm size, and correlates with investors' demand for information. Is information supply optimally distributed in financial markets? We build a model where limited-attention investors endogenously learn about securities. Analysts compete for scarce investor attention, providing forecasts that reduce learning costs. Coverage crowding emerges through strategic complementarity effects. For limited investor attention, analysts prefer to share a crowded space rather than ``going against the wind'' to cover more opaque assets. However, coverage skewness is excessive from the investors' perspective.

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LUNCH (12/19/2019 at 12:30)

Mergers & Acquisitions (12/19/2019 at 14:00)

Presiding : Edith Ginglinger (University of Paris-Dauphine)

Acquisitions and Technology Value Revision

Authors : De Cesari Amedeo (Alliance Manchester Business School, University of Manchester); Cai Xiangshang (Alliance Manchester Business School, University of Manchester); Gao Ning (Alliance Manchester Business School, University of Manchester); Peng Ni (School of Business and Management, Queen Mary University of London)

Presenter: De Cesari Amedeo (Alliance Manchester Business School, University of Manchester)

Discussant: Wang Sumingyue (Shanghai University of Finance and Economics)

Merger announcements cause upward revisions in the market value of target firms' technology peers, whether targets and their peers belong to the same industry or not. Firms having deeper technology overlaps with the targets experience more dramatic price revisions. Consistent with the acquisition probability theory, a firm is more likely to be taken over if at least one of its technology peers has been acquired recently; and peers more vulnerable to acquisitions have greater upward price revisions. Our findings demonstrate that the market for corporate control is an important information source to resolve the uncertainties in technology valuation.

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Build or Buy? Human Capital and Corporate Diversification

Authors : Beaumont Paul (Paris Dauphine); Hebert Camille (University of Toronto); Lyonnet Victor (Ohio State University)

Presenter: Hebert Camille (University of Toronto)

Discussant: Luo Mancy (Erasmus University)

Why do some firms enter a new sector by acquiring an existing company ("buy"), while others do so using their existing resources ("build")? Using a novel data set constructed by merging French employer payrolls with commercial M\&A data sets, we show that firms are more likely to buy when their existing workforce does not include skills needed in the sector of entry. This relationship is more pronounced when labor market frictions make it difficult to hire key workers. Using a novel data set constructed by merging French employer payrolls with commercial M\&A data sets, we study firms' decision to build or buy. Firms with an existing workforce that is not adapted to the sector of entry are more likely to buy, especially when it is difficult to hire key workers for the sector of entry. Firms that enter by building realize lower entry sales when their existing workforce is not adapted to the sector of entry, especially in the presence of labor market frictions. Our results suggest that firms buy to acquire their targets' human capital when adapting their existing workforce is too costly.

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Returns to Scale from Labor Specialization: Evidence from Global Asset Management

Authors : Schumacher David (McGill University); Luo Mancy (Erasmus University); Manconi Alberto (Bocconi University)

Presenter: Luo Mancy (Erasmus University)

Discussant: De Cesari Amedeo (University of Manchester)

We use mergers in the global asset management industry to study the returns to scale from labor specialization. Mergers are followed by an increase in managerial turnover that assigns fund managers to more specialized tasks. This leads to increased specialization and product differentiation, creating an incremental $60 million of value added per merger per year on average. Such value creation is concentrated in “mergers of equals” that lead to the largest increases in firm size. Our results provide direct and quantifiable evidence on the value of the firm’s role in assigning employees to tasks.

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Why do Firms Bundle Earnings and Acquisition Announcements?

Authors : Wang Sumingyue (Shanghai University of Finance and Economics, School of Accountancy); Daures Lescourret Laurence (ESSEC Business School); Gaspar José-Miguel (ESSEC Business School)

Presenter: Wang Sumingyue (Shanghai University of Finance and Economics, School of Accountancy)

Discussant: Imad'Eddine Gael (Lille 2 University)

An increasing fraction of M&A deals are announced on the same day in which the bidder reports its quarterly earnings, a phenomenon we call ‘bundled’ announcements. Compared to other bids, bundled bids are associated with strongly lower bidder announcement returns. In addition, reported earnings of bundling acquirers are lower than those of other bidders. Bidders engage in bundling in moments of high investor attention, and when analysts’ views about the firm are divided. Our findings indicate that bundling is a tool of strategic disclosure used to decrease stock price volatility.

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Market Microstructure 2 (BEDOFIH) (12/19/2019 at 14:00)

Presiding : Patrice Fontaine (Eurofidai, CNRS)

Measuring Liquidity Provision by Customers in Corporate Bond Markets: Evidence from 54 Million Transactions

Authors : Xue Jinming (University of Maryland)

Presenter: Xue Jinming (University of Maryland)

Discussant: Carré Sylvain (Ecole Polytechnique Fédérale de Lausanne)

This paper measures the role of liquidity provision by buy-side customers in corporate bond markets via a structural vector autoregression (SVAR). Unobservable shocks to the willingness of customers and bond dealers to provide liquidity aect the choice of bond dealers, in opposite directions, between market-making (principal) and matchmaking (riskless principal) transactions. Exploiting this distinction, the SVAR disentangles these two shocks and reveals two episodes of high level of liquidity provision by customers in corporate bond markets: (i) the 2008 "fight-to-safety" and (ii) the 2014-2015 "requests for quotations" technology developments. Furthermore, yield spreads for bonds of dfferent credit ratings respond differentially to shocks in liquidity provision by dealers and customers. My empirical identification strategy for the SVAR is motivated using a theoretical model of decentralized liquidity provision.

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A Tale of Two Cities - Inter-Market Latency, Market Integration, and Market Quality

Authors : Scharnowski Stefan (University of Mannheim and Research Center SAFE, Frankfurt); Sagade Satchit (University of Frankfurt and Research Center SAFE, Frankfurt); Theissen Erik (University of Mannheim and Centre for Financial Research, Cologne); Westheide Christian (University of Vienna and Research Center SAFE, Frankfurt)

Presenter: Scharnowski Stefan (University of Mannheim and Research Center SAFE, Frankfurt)

Discussant: Glebkin Sergei (INSEAD)

We study the introduction of a microwave link between Frankfurt and London and identify its effects on German stocks that trade in both locations using French firms that trade only in London as the control group. We find that the link improves the integration between the two markets as evidenced by a reduction in arbitrage opportunities. The effects on market quality differ across stocks as high-frequency traders strategically utilize their speed advantage to supply or consume liquidity. In London, mid cap stocks benefit from increased liquidity provision whereas order flow for large stocks becomes more toxic. London's increased competitiveness for mid cap stocks also translates into an increase in its information share, while the information shares of large cap stocks are unchanged. These results suggest that market integration differently affects investors based on their speed advantage, trading venues based on their level of competitiveness, and stocks based on their size.

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Insider Trading under Penalties

Authors : Carré Sylvain (Ecole Polytechnique Fédérale de Lausanne); Collin-Dufresne Pierre (Ecole Polytechnique Fédérale de Lausanne); Gabriel Franck (Ecole Polytechnique Fédérale de Lausanne)

Presenter: Carré Sylvain (Ecole Polytechnique Fédérale de Lausanne)

Discussant: Scharnowski Stefan (University of Mannheim and Research Center)

We establish existence and uniqueness of equilibrium in a generalised one-period
Kyle (1985) model where insider trades can be subject to a penalty, i.e. a cost that
is non-decreasing in the trade size. The result is obtained by considering uniform
noise and holds for virtually any penalty function. Uniqueness is among all nondecreasing
strategies. The insider demand and price functions are in general non-linear,
yet tractable.
We apply this result to a problem of optimal insider trading regulation. We show
analytically that the penalty functions maximising price informativeness for given noise
traders' losses eliminate small rather than large trades. We generalise this result to
cases where a budget constraint distorts the set of implementable regulations.

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Simultaneous Multilateral Search

Authors : Yueshen Bart (INSEAD); Glebkin Sergei (INSEAD); Shen Ji (PKU)

Presenter: Glebkin Sergei (INSEAD)

Discussant: Xue Jinming (University of Maryland)

We study simultaneous multilateral search (SMS) in an over-the-counter market: when searching, an investor contacts several potential counterparties and then chooses to trade with the one offering the best quote. Search intensity (how frequently one can search) and search capacity (how many potential counterparties one can contact) affect equilibrium objects differently. Despite investor homogeneity, quote dispersion arises in equilibrium, with bids possibly crossing asks. We contrast SMS to bilateral bargaining (BB), where investors engage in Nash bargaining with one potential counterparty each time. Given the choice, investors might prefer BB over SMS, hurting allocative efficiency.

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Financial Econometrics (12/19/2019 at 14:00)

Presiding : Ian Cooper (London Business School)

Discount Rates and Cash Flows: A Local Projection Approach

Authors : Lof Matthijs (Aalto University School of Business); Nyberg Henri (University of Turku)

Presenter: Nyberg Henri (University of Turku)

Discussant: Langlois Hugues (HEC Paris)

We develop a volatility decomposition derived from flexible and robust local projections to quantify the relative contributions of expected discount rates and cash flows to the variation of dividend yields. Local projections enable the incorporation of large information sets, the use of monthly data in addition to annual data, and the consideration of time variation of the volatility decomposition. While the variation of expected discount rates remains the dominant contributor to market volatility, we find that the contribution of expected cash flows is non-negligible when moving beyond the standard model with the dividend yield as the single state variable.

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Hedging Labor Income Risk over the Life-Cycle

Authors : Fugazza Carolina (University of Torino); Fabio Bagliano (University of Torino); Raffaele Corvino (University of Torino); Giovanna Nicodano (University of Torino)

Presenter: Raffaele Corvino (University of Torino)

Discussant: Quaini Alberto (University of Geneva and SFI)

We show that the decision to participate in the stock market depends on the ability of equities to hedge the individual permanent earnings shocks, consistent with implications of life-cycle models. Those households who refrain from stock investing display positive correlation between their own permanent income innovations and market returns. These results owe to a two-step empirical strategy. First, a minimum distance estimation disentangles the aggregate from the idiosyncratic permanent component of labor income risks. The second step reconstructs the individual life-cycle dynamics of persistent shocks through a Kalman filter applied to the estimated labor income process. We are thus able to obtain the full cross-sectional distribution of individual correlations between permanent shocks and market returns.

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Smart SDFs

Authors : Trojani Fabio (University of Geneva and SFI); Korsaye Sofonias (University of Geneva); Quaini Alberto (University of Geneva)

Presenter: Quaini Alberto (University of Geneva and SFI)

Discussant: Nyberg Henri (University of Turku)

We introduce model-free Smart Stochastic Discount Factors (S–SDFs) minimizing various notions of SDF variability under general convex constraints on pricing errors, which can be motivated by particular market frictions, asymptotic APT-type no-arbitrage assumptions or a need for regularization in large arbitrage-free asset markets. S–SDFs give rise to new nonparametric SDF bounds for testing asset pricing models, under more general assumptions on a model’s ability to price cross-sections of assets. They arise from a simple transformation of the optimal payoff in a penalized dual portfolio selection problem with uniquely determined penalization function. We demonstrate the properties of S–SDFs induced by various economically motivated pricing error penalizations, which can load on a sparse set of endogenously selected securities and can produce a more robust pricing performance. We then show how pricing error and dual portfolio weight sparsity can be made compatible with tractability, i.e., smoothness, of the corresponding dual portfolio problem. For such settings, we develop the relevant methodology for the empirical analysis of S–SDFs. Lastly, we demonstrate the properties and the improved out-of-sample pricing performance of S–SDFs in various APT settings where SDF–regularization naturally matters.

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Time-Varying Risk Premia in Large International Equity Markets

Authors : Langlois Hugues (HEC Paris); Chaieb Ines (University of Geneva and Swiss Finance Institute); Scaillet Olivier (University of Geneva and Swiss Finance Institute)

Presenter: Langlois Hugues (HEC Paris)

Discussant: Corvino Raffaele (University of Torino)

We estimate and test factor models with time-varying loadings and risk premia for a large unbalanced panel of 62, 320 individual stock returns in 46 countries. First, we check that the tested factor models achieve weak cross-sectional dependence crucial for inference on risk premia. Adding an excess country market factor to world or regional market and non-market factors captures the factor structure for both developed and emerging markets. Second, we do not reject asset pricing restrictions in up to 91% of countries. Third, we uncover significant heterogeneity in level and dynamics of factor risk premia between and within developed and emerging markets.

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Asset Pricing 3 (12/19/2019 at 14:00)

Presiding : Peter Gruber (University of Lugano)

Arbitrage Portfolios

Authors : Neuhierl Andreas (University of Notre Dame); Kim Soohun (Georgia Tech); Korajczyk Robert (Northwestern - Kellogg)

Presenter: Neuhierl Andreas (University of Notre Dame)

Discussant: Roussellet Guillaume (McGill University)

Abstract We propose new methodology to estimate arbitrage portfolios by utilizing information contained in firm characteristics for both abnormal returns and factor loadings. The methodology gives maximal weight to risk-based interpretations of characteristics' predictive power before any attribution to abnormal returns. We apply the methodology in simulated factor economies and to a large panel of U.S. stock returns from 1965–2014. The methodology works well in simulation and when applied to U.S. stocks. Empirically, we find the arbitrage portfolio has (statistically and economically) significant alphas relative to several popular asset pricing models and annualized Sharpe ratios ranging from 1.35 to 1.75.

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Asset Pricing Through Peer Networks

Authors : Wang Dieter (VU Amsterdam and Tinbergen Institute)

Presenter: Wang Dieter (VU Amsterdam and Tinbergen Institute)

Discussant: Tancheva Zhaneta (Tilburg University)

We propose a framework that prices assets with respect to other assets and treat the excess return of every stock as a potential risk factor. In addition to the market, size or profitability premia, individual excess returns also carry a premium for their similarity with their peers. The peer risk premium manifests itself as a markup to fundamental factor loadings. Neglecting peer effects results in mispricing and misinterpreting factor risk as idiosyncratic risk. We find statistical evidence that markets price firm similarities by scrutinizing the S&P100 constituents. The Fama-French residuals of the returns contain a non-idiosyncratic common factor, which vanishes upon inclusion of peer effects. The model also produces a peer factor that withstands the five Fama-French factors.

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Optimal Risk Sharing with Time-Inconsistency and Long-Run Risk

Authors : Tancheva Zhaneta (Tilburg University)

Presenter: Tancheva Zhaneta (Tilburg University)

Discussant: Neuhierl Andreas (University of Notre Dame)

I examine the role of time-inconsistency, modeled by hyperbolic discounting, for the dynamics
of asset prices and the wealth distribution between agents. Naive time-inconsistent investors with
recursive preferences overconsume and have a lower effective elasticity of intertemporal substitution
(EIS) than otherwise similar investors who are time-consistent. In both survival and overlappinggenerations
economies with i.i.d. consumption growth, I show that the suboptimal consumption and
saving decisions of the naive time-inconsistent investors endogenously generate long-run risks in the
consumption dynamics of the time-consistent agents. As a result, the presence of naive shortsighted
investors increases the risk-free rate, volatility, and risk premium in the economy.

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Identifying Beliefs from Asset Prices

Authors : Roussellet Guillaume (McGill University); Ghosh Anisha (McGill University)

Presenter: Roussellet Guillaume (McGill University)

Discussant: Wang Dieter (VU Amsterdam and Tinbergen Institute)

This paper proposes a novel information-theoretic procedure to identify investors' beliefs about future macroeconomic and financial outcomes from observed asset prices. Our approach recovers \textit{price-consistent beliefs}, i.e. the conditional distribution of macro and financial variables that satisfy the conditional Euler equations, given a cross-section of assets, a pricing kernel, and a conditioning set. Our procedure is non-parametric, not requiring any functional-form assumption about the dynamics of the variables, or regarding investor rationality or lack thereof. The price-consistent beliefs show strong cyclicality in the conditional mean and skewness of aggregate consumption growth, while the conditional volatility is mostly flat over the business cycle. This contrasts with the widely assumed conditionally normal dynamics in the existing literature. Looking at stock market returns, we observe that the price-consistent beliefs contain similar information as survey data on institutional investors' expectations. A comparison of these price-consistent beliefs with a non-parametric objective benchmark suggests large beliefs distortions. Investors underestimate the expected consumption growth mostly during recessions, but consistently overestimate the skewness of the consumption growth rate to a much larger extent.

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Banking and Financial Intermediation 2 (12/19/2019 at 14:00)

Presiding : Michael Troege (ESCP)

Deregulation, Market Structure, and the Demise of Old-School Banking

Authors : Bisetti Emilio (HKUST); A. Karolyi Stephen (Carnegie Mellon University); Lewellen Stefan (Pennsylvania State University)

Presenter: Bisetti Emilio (HKUST)

Discussant: Sanz Leandro (Federal Reserve Bank of Richmond)

We construct a new network-based measure of U.S. state-level bank deregulation intensity that allows us to separately identify the effects of deregulation on competition and investment opportunities. In contrast to existing studies, we find that increased competition leads to higher deposit funding costs and a reduction in banks' net interest margins and profitability. In response, banks increase their risk-taking, shift their business models towards new sources of non-interest income, and become more likely to be acquired by other banks. Our findings resolve conflicting evidence in the literature and support theories in which reductions in bank charter values lead to increased bank risk-taking.

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Bank Bonus Pay as a Risk Sharing Contract

Authors : Efing Matthias (HEC Paris); Hau Harald (SFI); Rochet Jean-Charles (SFI); Kampkoetter Patrick (University of Tuebingen)

Presenter: Efing Matthias (HEC Paris)

Discussant: Bisetti Emilio (HKUST)

We argue that risk sharing motivates the bank-wide structure of bonus pay. In the presence of financial frictions that make external financing costly, the optimal contract between shareholders and employees involves some degree of risk sharing whereby bonus pay partially absorbs earnings shocks. Using payroll data for 1.26 million employee-years in all functional divisions of Austrian, German, and Swiss banks, we uncover several empirical patterns in bonus pay that are difficult to rationalize with incentive theories of bonus pay---but support an important risk sharing motive. In particular, bonuses respond to performance shocks that are outside the control of employees because they originate in other bank divisions or even outside the bank.

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Unconventional Monetary Policy and Bank Lending Relationships

Authors : Cahn Christophe (Banque de France); Duquerroy Anne (Banque de France); Mullins Will (University of California San Diego)

Presenter: Cahn Christophe (Banque de France)

Discussant: Papoutsi Melina (European Central Bank)

How do banks transmit long-term central bank liquidity injections to borrowers? We exploit unique variation in how the ECB’s 2011-12 Long-Term Refinancing Operations (LTROs) affected lending to firms discontinuously across credit ratings (within banks) to make four contributions. (i) We show the LTROs induced increased bank lending to firms in France, including to SMEs, an elusive policy objective. (ii) We uncover important heterogeneity: banks pass through LTRO liquidity very differently to multi-bank firms than they do to firms with only one bank. (iii) Differences in liquidity transmission map to archetypal lending types: single-bank firms receive relationship lending, and these firms invest and grow in response, while multi-bank firms receive transactions-style lending and do not increase their investment. (iv) While the majority of the effect flows to firms whose loans are policy-eligible, we identify a spillover (onto multi-bank firms only) that appears to be driven by bank competition for borrowers.

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Global Banks and Systemic Risk: The Dark Side of Country Financial Connectedness

Authors : Sanz Leandro (Federal Reserve Bank of Richmond); Atanas Mihov (Federal Reserve Bank of Richmond)

Presenter: Sanz Leandro (Federal Reserve Bank of Richmond)

Discussant: Cahn Christophe (Banque de France)

We study the relation between country financial connectedness and systemic risk for U.S. banking organizations with global exposures. We find that banks with more foreign claims in countries that are well connected to global financial markets contribute more to U.S. systemic risk. We document specific bank-level (systemic importance, leverage and illiquidity) and country-level (financial crises) channels that amplify these effects. We also examine the roles different forms of connectedness, and types and sectors of foreign claims, play for cross-border risk propagation. Our findings are particularly relevant for macro-prudential policy given the concentration of U.S. financial claims in well-connected markets.

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Corporate Finance 2 (12/19/2019 at 14:00)

Presiding : Ryan Williams (University of Arizona)

Employment Effects of Alleviating Financing Frictions: Worker-level Evidence from a Loan Guarantee Program

Authors : Vallee Boris (Harvard Business School); Barrot Jean-Noel (HEC Paris); Martin Thorsten (Bocconi); Sauvagnat Julien (Bocconi)

Presenter: Martin Thorsten (Bocconi)

Discussant: Croci Ettore (Universita Cattolica del Sacro Cuore)

We document the impact on worker employment trajectories of countercyclical loan guarantee programs aiming at mitigating financing frictions for SMEs. Our identification strategy exploits plausibly exogenous heterogeneity in policy generosity between French regions, interacted with a geographical regression discontinuity design. We show that the guarantees result in a significantly higher likelihood of being employed over the seven years following the intervention, which translates into significantly higher cumulated earnings. We estimate the gross cost to preserve a job(-year) to be in the range of EUR 2,400 - EUR 5,400, and a negative net cost when we include the savings on unemployment benefits.

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Reductions in CEO Career Horizons and Corporate Policies

Authors : Croci Ettore (Universita' Cattolica del Sacro Cuore); Aktas Nihat (WHU Otto Beisheim School of Management ); Boone Audra (Texas Christian University); Signori Andrea (Universita' Cattolica del Sacro Cuore)

Presenter: Croci Ettore (Universita' Cattolica del Sacro Cuore)

Discussant: Gill Andrej (Gutenberg University Mainz)

We provide evidence on how personal shocks that reduce a CEO’s career horizon, triggered by either the CEO’s diagnosis of a serious illness or an illness or death of a close relative, affects corporate policies. We validate our identification strategy by showing that these events are not predictable based on observable characteristics and that the CEOs exposed to such events experience greater turnover rates and lower residual time-in-office. Following the shock, and while the CEO is still in office, these firms moderate both R&D and capital expenditures and increase in cash distributions. While these results are consistent with greater short-term orientation in this setting, it is not necessarily detrimental to shareholders, as performance increases in the aftermath of the shock. Earnings management, CEO compensation, and the likelihood of being acquired remain unchanged, indicating that the improved performance comes from the implementation of relatively more efficient firm policies rather than from opportunistic behavior.

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Intellectual property and Leverage: The Role of Patent Portfolios

Authors : Gill Andrej (Gutenberg University Mainz); Heller David (Goethe University Frankfurt)

Presenter: Gill Andrej (Gutenberg University Mainz)

Discussant: Thorsten Martin (Bocconi)

This paper analyses the importance of intellectual property in determining capital structure decisions. We argue that firms can use their patent stock as collateral and thereby relax possible debt financing restrictions. Using data from the European Patent Office and balance sheet data of European companies, we find that larger and more valuable patent stocks lead to higher debt-ratios - controlling for well-established capital structure determinants. We further assess variation across as well as within industries and show that effects are mainly driven by tech-oriented and research intensive firms. Drawing on a legislative change in EU-law, allows us to establish a causal relationship between firms' patent portfolio and their use of debt. Results provide a new perspective on optimal capital structure decisions. From a policy perspective, our findings suggest to further harmonize enforcement rules on intellectual property to support financially constrained, innovative firms.

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COFFEE BREAK (12/19/2019 at 16:00)

Private Equity & Venture Capital (ARDIAN) (12/19/2019 at 16:30)

Presiding : Marie Brière (Amundi - University of Paris Dauphine)

How Alternative Are Private Markets?

Authors : Gourier Elise (ESSEC Business School); Phalippou Ludovic (University of Oxford); Goetzmann Will (Yale University)

Presenter: Gourier Elise (ESSEC Business School)

Discussant: Bowen Donald (Lehigh University)

We present a new and flexible methodology to build factors in illiquid markets, from an unbalanced panel of smoothed asset returns. We apply this methodology to a large and unique panel of private market funds. We build a set of eight private factors that capture the common variation in private market returns. Four of these factors command a risk premium above 3%, but half of the variation in their returns is explained by standard listed equity factors. Exposure to these factors can be gained by forming a portfolio with given fund characteristics that include region of investment, industry focus, investment strategy, and fund size.

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Whom to follow: Individual Manager Performance and Persistence in Private Equity Investments

Authors : Dorau Nils (Technical University of Munich (TUM)); Braun Reiner (Technical University of Munich (TUM)); Jenkinson Tim (University of Oxford); Urban Daniel (Erasmus University Rotterdam)

Presenter: Dorau Nils (Technical University of Munich (TUM))

Discussant: Gourier Elise (ESSEC Business School)

Using a sample of 3,977 individual buyout managers with more than 10,330 deal involvements in 5,030 unique buyout transactions, we investigate individual manager performance and its persistence. We find evidence for deal-level gross PME performance persistence at this level of analysis. In explaining the cross-section of deal returns, the individual is around four times more important than the PE organization. Interestingly, none of the typical human capital variables (age, PE tenure, MBA, Ivy League attendance) has explanatory power in the cross-section of deal returns. Instead, we document that investment performance increases with a manager’s industry expertise. As a consequence, we find that individual persistence only exists for managers who stay within a certain industry, whereas it disappears for manager who invest across different industries.

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Technological Disruptiveness and the Evolution of IPOs and Sell-Outs

Authors : Bowen Donald (Lehigh University); Hoberg Gerard (University of Southern California); Fresard Laurent (Universita della Svizzera Italiana (Lugano))

Presenter: Bowen Donald (Lehigh University)

Discussant: Dorau Nils (Technical University of Munich)

Using novel text-based measures of patents from 1930 to 2010, we study VC-backed startups' exit choices. We show that startups with ex-ante disruptive technologies are more (less) likely to exit via IPO (sell-out). These cross sectional results are consistent with IPOs being favored by firms with the potential to carve out independent market positions, avoiding the need to share gains with an acquirer. In time series, we document a new 80-year economy-wide trend of declining technological disruptiveness. Together, these findings predict a shift in exits, which explains 20% of the recent decline in IPOs, and 49% of the surge in sell-outs.

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Behavioral Finance 2 (12/19/2019 at 16:30)

Presiding : Jean-François Gajewski (University of Lyon, Jean Moulin)

Anticipated Regret and Equity Returns

Authors : Arisoy Yakup (NEOMA Business School); Bali Turan (Georgetown University, McDonough School of Business); Tang Yi (Fordham University, Gabelli School of Business)

Presenter: Arisoy Yakup (NEOMA Business School)

Discussant: Shen Jialu (University of Missouri)

We investigate the cross-sectional asset pricing implications of anticipated regret for mean-variance investors. We propose a theoretical framework in which mean-variance investors anticipate regret due to deviations from their expected return and variance objectives. We show that equity portfolios with low anticipated regret generate 7.6% more annualized alpha than portfolios with high anticipated regret. The anticipated regret premium is not explained by costly arbitrage, investor inattention, or prospect theory. We further decompose anticipated regret into two components, return-regret and variance-regret, and show that both components play a significant role in mean-variance investors' financial decision making under anticipated regret.

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Safety First, Loss Probability, and the Cross Section of Expected Stock Returns

Authors : Zhao Lei (ESCP Europe); Cao Ji (Yunnan University); Rieger Marc Oliver (University of Trier)

Presenter: Zhao Lei (ESCP Europe)

Discussant: Arisoy Yakup (NEOMA Business School)

Recent studies show that loss probability (LP) is a decisive factor when people
evaluate risk of assets in laboratory experiments, suggesting a positive relationship
between LP and expected stock returns. This corresponds to the classical \Safety-
First" principle. We nd strong empirical support for this prediction in the U.S.
stock market. During our sample period, average risk-adjusted return di erences
between stocks in the two extreme LP deciles exceed 0.75% per month. The positive
LP e ect, characterized by the intention of some investors to pay low prices for
high LP stocks, remains signi cant after controlling for traditional downside risk

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Countercyclical Risks and Optimal Life-Cycle Profile: Theory and Evidence

Authors : Jialu Shen (University of Missouri)

Presenter: Jialu Shen (University of Missouri)

Discussant: Zhao Lei (ESCP Europe)

I show that countercyclical earnings risk alone can cause countercyclical consumption risk and generate moderate stock holdings for young households. Moreover, countercyclical earnings risk quantitatively affects savings and portfolio choice decisions over the business cycle. Using the Panel Study of Income Dynamics survey, I construct an empirical measure of earnings risk and investigate how consumption risk and households' portfolio allocations and consumption change in response to earnings risk. My analysis shows that larger downside earnings risk increases consumption risk and reduces risky asset holdings and consumption, which are consistent with the model's predictions. Moreover, countercyclicality in consumption risk is more significant for stockholders than for nonstockholders. Using the flexibility of the model, I find that the elasticity of intertemporal substitution and the expected return of a stock can explain this heterogeneity between stockholders and nonstockholders.

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FinTech & Cryptocurrencies (FinTech Chair) (12/19/2019 at 16:30)

Presiding : Hervé Alexandre (University of Paris-Dauphine)

On the Transmission of News and Mining Shocks in Bitcoin

Authors : Faia Ester (Goethe University and CEPR); Karau Soeren (Goethe University and Deutsche Bundesbank); Lamersdorf Nora (Goethe University); Moench Emanuel (Deutsche Bundesbank, Goethe University, and CEPR)

Presenter: Moench Emanuel (Deutsche Bundesbank, Goethe University, and CEPR)

Discussant: Braunseis Alexander (University of Klagenfurt)

Cryptocurrency prices fluctuate strongly despite the fact that their supply typically follows
mechanical rules. In this paper we focus on two determinants of Bitcoin valuations.
Using an agnostic narrative approach to identify exogenous events related to Bitcoin
mining (mining shocks) and news affecting investor perception (news shocks), we first
show that both types of events have sizable and persistent effects on Bitcoin valuation
and aggregate mining activity. We then rationalize our findings in a model with search
frictions in which heterogeneous investors can trade Bitcoin but have their transactions
validated by competitive miners. The model endogenously generates waiting times and
an equilibrium distribution of asset positions, which is driven by competition among
miners on validation speed. Finally, we use our model to inform sign restrictions in a
structural VAR analysis. We confirm the model narrative and our initial findings that
both news and mining shocks significantly and persistently affect Bitcoin valuations.

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Contagious Volatility

Authors : Buchwalter Bastien (ESSEC Business School)

Presenter: Buchwalter Bastien (ESSEC Business School)

Discussant: Moench Emanuel (Deutsche Bundesbank, Goethe University, and CEPR)

How does uncertainty of crypto-assets affect traditional asset classes? Using a vector autoregression (VAR) methodology, I answer this question by analyzing volatility spillovers between five asset classes (crypto-assets, stocks, bonds, fiat-currencies, and commodities). Given the vast heterogeneity within each asset class, my VAR specification accounts for cross sectional variation across and within each asset class. By transforming the VAR residuals into sectoral shocks, I am able to distinguish between volatility spillovers across, and volatility co-movements within asset classes. I find that on average volatility of crypto-assets accounts for 15% of the volatility contagion received by traditional asset classes. The directional spillovers from crypto-asset to bonds and to fiat-currencies are particularly strong, capturing the wealth channel and the remittance channel, respectively.

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A High-Frequency Analysis of Bitcoin Markets

Authors : Theissen Erik (University of Mannheim); Brauneis Alexander (University of Klagenfurt); Mestel Roland (University of Graz); Riordan Ryan (Queens University)

Presenter: Brauneis Alexander (University of Klagenfurt)

Discussant: Buchwalter Bastien (ESSEC Business School)

We study trading of Bitcoin (BTC) against US dollar (USD) on ex-changes on three continents, Bitfinex, Bitstamp and Coinbase Pro. We use a high frequency dataset that contains transactions and order book information. The BTCUSD market is highly liquid in terms of bid-ask spreads and order book depth. While spreads are low, markets are not integrated. Persistent differences exist between the three exchanges in terms of transaction and posted prices, and markets are crossed most of the time. The liquidity of the Bitcoin exchanges is predominantly deter-mined by local factors and is essentially independent of liquidity in equity and FX markets.

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Corporate Governance 2 (12/19/2019 at 16:30)

Presiding : Thai Trang T. (SUNY Brockport)

Selection versus Incentives in Incentive Pay: Evidence from a Matching Model

Authors : Xia Shuo (Halle Institute for Economic Research, Leipzig University)

Presenter: Xia Shuo (Halle Institute for Economic Research, Leipzig University)

Discussant: Waller Gregory (Virginia Commonwealth University)

Higher incentive pay is associated with better firm performance. I introduce a model of CEO-firm matching to disentangle the two confounding effects that drive this result. First, higher incentive pay directly induces more effort; second, higher incentive pay indirectly attracts more-talented CEOs. I find that both effects are essential to explain the result, with the selection effect accounting for 22% of the total effect. The relative importance of the selection effect is the largest in submarkets with high talent mobility and in more recent years.

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Why Do Boards Let Their CEOs Take Outside Directorships? Entrenchment and Embeddedness

Authors : Zhao Hong (NEOMA Business School); Hertzel Michael (Arizona State University)

Presenter: Zhao Hong (NEOMA Business School)

Discussant: Xia Shuo (Halle Institute for Economic Research, Leipzig University)

We study the supply side of the market for CEOs as outside board members in the context of increasing legal and shareholder pressure on CEOs to refrain from accepting outside directorships. Consistent with potential benefits to their employing firms, CEOs have been increasingly more likely to accept directorships at vertically-related firms, especially when information and learning about upstream/downstream industries is expected to be particularly valuable. CEO directorships at vertically-related firms have a significant positive effect on firm value and performance and help their firms handle industry shocks. Consistent with agency/entrenchment costs, CEO outside directorships at unrelated firms are more likely for sending firms with weaker governance and have a significant negative effect on firm value. Taken together, our results suggest that external pressure has reduced the number of outside directorships that CEOs take and has improved their overall quality, although some evidence of agency problems remains.

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Board Declassification and Bargaining Power

Authors : Straska Miroslava (Virginia Commonwealth University); Waller Gregory (Virginia Commonwealth University)

Presenter: Waller Gregory (Virginia Commonwealth University)

Discussant: Zhao Hong (NEOMA Business School)

We examine the relations between recent board declassifications, takeover activity and takeover gains over the period 2003-2011. We report that firms that declassified their boards in the previous five years are more likely to be the target of a takeover than other firms. We also report that these firms receive lower takeover offers and realize lower abnormal returns around the announcement of the transaction. Additionally, the takeover bids received by these firms are more likely to result in a successful takeover. These results are consistent with the interpretation that firms that declassified their boards have lost some bargaining power.

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Porfolio Management 2 (AMUNDI) (12/19/2019 at 16:30)

Presiding : Jocelyn Martel (ESSEC Business School)

Fuel is Pumping Premiums: A Consumption-based Explanation of the Value Anomaly

Authors : Schlag Christian (Goethe University Frankfurt and Research Center SAFE); Dittmar Robert (Ross School of Business, University of Michigan); Thimme Julian (Goethe University Frankfurt)

Presenter: Schlag Christian (Goethe University Frankfurt and Research Center SAFE)

Discussant: Xu Danielle (Gonzaga University)

The standard approach in empirical consumption-based asset pricing to use nondurables and services as a proxy for consumption appears inappropriate. We estimate substitution elasticities between different consumption bundles and show that households cannot substitute energy consumption by consumption of other nondurable goods or services. As a consequence, energy consumption shows up as a separate factor in the pricing kernel. Cross-sectional variation in energy consumption betas explains a large part of the value premium. Value stocks are typically more energy-intensive than growth stocks and thus riskier, since they su↵er more from the oil supply shocks that also affect households.

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Rationally Neglected Stocks

Authors : Gorbenko Arseny (University of New South Wales); Chuprinin Oleg (University of New South Wales)

Presenter: Gorbenko Arseny (University of New South Wales)

Discussant: Andrei Daniel (McGill University)

There are large cross-sectional differences in the probability and magnitudes of mispricing among stocks. The traditional explanation for mispricing is limits to arbitrage. We show that, regardless of arbitrage costs, mispricing persists when professional investors lack incentives to expend investigative resources to detect mispricing. In the cross-section, these incentives are driven by the expected dollar gains from arbitrage opportunities. Arbitrageurs rationally neglect to investigate stocks if the expected arbitrage revenue is small. For such stocks, information discovery by investors is slow and the mispricing is corrected mostly through mandatory financial disclosures by firms. Using measures of institutional attention and trading discreteness we confirm this mechanism empirically. The revenue potential channel explains persistent mispricing better than any classic arbitrage frictions.

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The Low-Minus-High Portfolio and the Factor Zoo

Authors : Fournier Mathieu (HEC Montreal); Andrei Daniel (McGill University); Cujean Julien (University of Berne)

Presenter: Andrei Daniel (McGill University)

Discussant: Schlag Christian (Goethe University Frankfurt and Research Center SAFE)

Anomalies in the cross section of returns should not be regarded as evidence against the CAPM. Regardless whether the CAPM is rejected for valid reasons or by mistake, a single long-short portfolio will always explain, together with the market, 100% of the cross-sectional variation in returns. Yet, this portfolio need not proxy for fundamental risk. We show theoretically how factors based on valuation ratios (e.g, book-to-market), or on investment rates, can be proxies for this portfolio. More generally, the empiricist can uncover an infinity of proxies for this portfolio, thus unleashing the factor zoo.

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Asset Pricing 4 (12/19/2019 at 16:30)

Presiding : Guillaume Roussellet (McGill University)

Switching Perspective: Corporate Distress, Asset and Financial Risk, and the Cross-Section of Bond Returns

Authors : Aretz Kevin (Alliance Manchester Business School); Yang Shuwen (Alliance Manchester Business School)

Presenter: Aretz Kevin (Alliance Manchester Business School)

Discussant: Filippou Ilias (Washington University in St Louis)

We offer evidence suggesting a significantly negative relation between firm-level distress risk and the cross-section of corporate bond returns, analogous to the often negative relation between distress risk and stock returns found in prior studies ("distress anomaly"). Our evidence casts doubts on theories arguing that the distress anomaly arises due to shareholders shifting financial risk onto debtholders in distress. In accordance, proxy variables suggested by such theories do not condition the distress risk-bond return relation. More promising, however, are theories suggesting that the anomaly arises due to distressed firms having a low levered asset risk due to them owning valuable disinvestment options, with some of the proxy variables suggested by these theories conditioning the former relation.

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Overcoming Arbitrage Limits: Option Trading and Momentum Returns

Authors : Ilias Filippou (Washington University in St. Louis); Abhay Abhyankar (University of Exeter); Pedro A. Garcia-Ares (University of Exeter); Ozkan Haykir (University of Exeter)

Presenter: Ilias Filippou (Washington University in St. Louis)

Discussant: Fleckenstein Matthias (University of Delaware)

In this paper we find that the decline in the momentum profitability is partly driven by option trading. Momentum profits arise from the short leg and therefore on barriers to short selling. We find strong evidence that the presence of stock options creates alternate avenues for short selling, augmenting the stock lending market, thus contributing to improved pricing efficiency. However, when option trading becomes expensive, there are more barriers to short selling and the short position offers lower returns. Our results are robust to exogenous changes in short selling due to Regulation SHO and are supported by other short-leg depended anomalies.

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The U.S. Treasury Floating Rate Note Puzzle: Is there a Premium for Mark-to-Market Stability?

Authors : Fleckenstein Matthias (University of Delaware); Longstaff Francis A. (UCLA)

Presenter: Fleckenstein Matthias (University of Delaware)

Discussant: Aretz Kevin (Alliance Manchester Business School)

We find that Treasury floating rate notes (FRNs) trade at a significant premium relative to the prices of Treasury bills and notes. This premium differs from previously-documented liquidity premia in Treasury security prices, is directly related to the near-constant nature of FRN prices, and is correlated with measures reflecting investor demand for safe assets. Motivated by evidence that money market funds are often the primary investors in FRNs, we use an important discontinuity in the recent regulatory reform of money market funds to identify exogenous shocks in the demand for investments with stable net asset values (NAVs). The FRN premium is related to flows into money market funds with fixed NAVs, but not to flows into similar funds with variable NAVs. These results provide strong evidence that the FRN premium represents a convenience yield for the mark-to-market stability feature of FRNs.

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COCKTAIL & PAPER AWARDS (12/19/2019 at 18:00)


In 2019, the prize was awarded to:

  • 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"

In 2018, the prize was awarded to:

  • Ye LI & Chen WANG for the paper entitled "Rediscover Predictibility: Information from the Relative Prices of Long-Term and Short-Term Dividends".

In 2017, the prize was awarded to:

  • Thorsten MARTIN & Clemens A. OTTO for the paper entitled "The Effect of Hold-Up Problems on Corporate Investment: Evidence from Import Tariff Reductions".

In 2016, the prize was awarded to:

  • Matthew DARST & Ehraz REFAYET for the paper entitled "Credit Default Swaps in General Equilibrium: Spillovers, Credit Spreads, and Endogenous Default".

In 2015, the prize was awarded to:

  • Roberto MARFE for the paper entitled "Labor Rigidity and the Dynamics of the Value Premium"

In 2014, the prizes were awarded to:

  • Corporate finance: Taylor BEGLEY for the paper entitled "The Real Costs of Corporate Credit Ratings"

  • Financial markets: Shiyang HUANG for the paper entitled "The Effect of Options on Information Acquisition and Asset Pricing"

In 2013, the prizes were awarded to:

  • Corporate finance: Clemens OTTO & Paolo VOLPIN for the paper entitled "Marking to Market and Inefficient Investment Décisions"

  • Financial markets: Matthias EFING & Harald HAU for the paper entitled "Structured Debt Ratings: Evidence on Conflicts of Interest"

  • High frequency data / Microstructure: Bart YUESHEN for the paper entitled "Queuing Uncertainty"



Registrations are closed.


Deadline December 8, 2019




The Paris December 2019 Finance Meeting will be held on December 19, 2019 at the Novotel Paris les Halles hotel in the heart of historical Paris.


Novotel Paris Les Halles Hotel
Place Marguerite de Navarre
75001 PARIS

Special rate for participants

After your registration, if you want to get a special rate at the Novotel Paris les Halles hotel, please contact the organizing committee :

(Deadline November 18, 2019)



Metro station: "Châtelet"
Lines 1, 7 and 11: exit "Place Ste Opportune"
Line 4: exit "Rue de la Lingerie"
Line 14: exit "n°10"
RER station: "Châtelet-les-Halles"
Lines A, B and D : exit "Forum des Halles" then follow the exit "Porte Berger"