Student Seminar #13: Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing
| Date | Time | Presenter | Location |
|---|---|---|---|
Saturday, November 9, 2019 (18 Aban 1398) | 12:30 – 13:30 | Peyman Shahidi (presented in English) | Khatam University (@ 17 Daneshvar), 7th Floor, Seminar Room |
We examine an economy in which agents cannot write contracts contingent on future labor income. The agents face aggregate uncertainty in the form of dividend and systematic labor income risk, and also idiosyncratic labor income risk, which is calibrated using the PSID. The agents trade in financial securities to buffer their idiosyncratic income shocks, but the extent of trade is limited by borrowing constraints, short-sales constraints, and transactions costs. By simultaneously considering aggregate and idiosyncratic shocks, we decompose the effect of transactions costs on the equity premium into two components. The direct effect occurs because individuals equate the net-of-cost margins. A second, indirect effect occurs because transactions costs result in individual consumption that more closely tracks individual income. In the simulations we find that the direct effect dominates and that the model can produce a sizable equity premium only if transactions costs are large or the assumed quantity of tradable assets is limited.
Student Seminar #12: Manipulation and the Allocational Role of Prices
| Date | Time | Presenter | Location |
|---|---|---|---|
Monday, October 14, 2019 | 12:30 – 13:30 | Kourosh Khansary | Khatam University (@ 17 Daneshvar), 7th Floor, Seminar Room |
“It is commonly believed that prices in secondary financial markets play an important allocational role because they contain information that facilitates the efficient allocation of resources. This paper identifies a limitation inherent in this role of prices. It shows that the presence of a feedback effect from the financial market to the real value of a firm creates an incentive for an uninformed trader to sell the firm’s stock. When this happens the informativeness of the stock price decreases, and the beneficial allocational role of the financial market weakens. The trader profits from this trading strategy, partly because his trading distorts the firm’s investment. We therefore refer to this strategy as manipulation. We show that trading without information is profitable only with sell orders, driving a wedge between the allocational implications of buyer and seller initiated speculation, and providing justification for restrictions on short sales. “
Student Seminar #11: Anticompetitive Effects of Common Ownership
| Date | Time | Presenter | Location |
|---|---|---|---|
Monday, October 07, 2019 | 12:30 – 13:30 | Esmaeil Aliabadi | Khatam University (@ 17 Daneshvar), 7th Floor, Seminar Room |
“Many natural competitors are jointly held by a small set of large institutional investors. In the U.S. airline industry, taking common ownership into account implies increases in market concentration that are 10 times larger than what is “presumed likely to enhance market power” by antitrust authorities.1 Within‐route changes in common ownership concentration robustly correlate with route‐level changes in ticket prices, even when we only use variation in ownership due to the combination of two large asset managers. We conclude that a hidden social cost—reduced product market competition—accompanies the private benefits of diversification and good governance.”
Student Seminar #10: How Smart Is Smart Money?
| Date | Time | Presenter | Location |
|---|---|---|---|
Monday, September 30, 2019 | 12:30 – 13:30 | Ramtin Salamat | Khatam University (@ 17 Daneshvar), 7th Floor, Seminar Room |
“I find that companies funded by more experienced VCs are more likely to go public. This follows both from the direct influence of more experienced VCs and from sorting in the market, which leads experienced VCs to invest in better companies. Sorting creates an endogeneity problem, but a structural model based on a two‐sided matching model is able to exploit the characteristics of the other agents in the market to separately identify and estimate influence and sorting. Both effects are found to be significant, with sorting almost twice as important as influence for the difference in IPO rates.”
Group Meeting #9: Margin Requirements, Speculative Trading, and Stock Price Fluctuations: The Case of Japan
| Date | Time | Presenter | Location |
|---|---|---|---|
Sunday, August 25, 2019 | 12:30 – 13:30 | Ramtin Salamat | Khatam University (@ 17 Daneshvar), 7th Floor, Seminar Room |
“An increase in margin requirements in the First Section of the Tokyo Stock Exchange is followed by a decline in margin borrowing, trading volume, the proportion of trading performed through margin accounts, the growth in stock prices, and the conditional volatility of daily returns. The nonmarginable Second Section stocks show a smaller change in volatility and only a delayed weak price response. The hypothesis that margin requirements restrict the behavior of destabilizing speculators can explain these correlations but cannot explain the observation that individuals, the most active users of margin funds, appear to be good market timers.”
Student Seminar #9: Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency
| Date | Time | Presenter | Location |
|---|---|---|---|
Sunday, August 11, 2019 | 12:30 – 13:30 | Mohammadreza Salehi | Khatam University (@ 17 Daneshvar), 7th Floor, Seminar Room |
“This paper documents that strategies which buy stocks that have performed well in the past and sell stocks that have performed poorly in the past generate significant positive returns over 3‐to 12‐month holding periods. We find that the profitability of these strategies are not due to their systematic risk or to delayed stock price reactions to common factors. However, part of the abnormal returns generated in the first year after portfolio formation dissipates in the following two years. A similar pattern of returns around the earnings announcements of past winners and losers is also documented.”
Required Reading(s)
Student Seminar #8: The Rate of Return on Everything, 1870–2015
| Date | Time | Presenter | Location |
|---|---|---|---|
Sunday, August 04, 2019 | 12:30 – 13:30 | Vahid Rostamkhani | Khatam University (@ 17 Daneshvar), 7th Floor, Seminar Room |
“What is the aggregate real rate of return in the economy? Is it higher than the growth rate of the economy and, if so, by how much? Is there a tendency for returns to fall in the long run? Which particular assets have the highest long-run returns? We answer these questions on the basis of a new and comprehensive data set for all major asset classes, including housing. The annual data on total returns for equity, housing, bonds, and bills cover 16 advanced economies from 1870 to 2015, and our new evidence reveals many new findings and puzzles.”
Required Reading(s)
Student Seminar #7: The Growth Potential of Startups over the Business Cycle
| Date | Time | Presenter | Location |
|---|---|---|---|
Monday, May 06, 2019 | 12:30 – 13:30 | Ramtin Salamat | Khatam University (@ 17 Daneshvar), 7th Floor, Seminar Room |
“This paper shows that employment in cohorts of US firms is strongly influenced by aggregate conditions at the time of their entry. Employment fluctuations of startups are procyclical, they persist into later years, and cohort-level employment variations are largely driven by differences in firm size, rather than the number of firms. An estimated general equilibrium firm dynamics model reveals that aggregate conditions at birth, rather than post-entry choices, drive the majority of cohort-level employment variation by affecting the share of startups with high growth potential. In the aggregate, changes in startup conditions result in large, slow-moving fluctuations in employment.”
Required Reading(s)
Student Seminar #6: The Impact of Uncertainty Shocks
| Date | Time | Presenter | Location |
|---|---|---|---|
Monday, April 22, 2019 | 12:30 – 13:30 | Mohammad Sadeghi | Khatam University (@ 17 Daneshvar), 7th Floor, Seminar Room |
“Uncertainty appears to jump up after major shocks like the Cuban Missile crisis, the assassination of JFK, the OPEC I oil‐price shock, and the 9/11 terrorist attacks. This paper offers a structural framework to analyze the impact of these uncertainty shocks. I build a model with a time‐varying second moment, which is numerically solved and estimated using firm‐level data. The parameterized model is then used to simulate a macro uncertainty shock, which produces a rapid drop and rebound in aggregate output and employment. This occurs because higher uncertainty causes firms to temporarily pause their investment and hiring. Productivity growth also falls because this pause in activity freezes reallocation across units. In the medium term the increased volatility from the shock induces an overshoot in output, employment, and productivity. Thus, uncertainty shocks generate short sharp recessions and recoveries. This simulated impact of an uncertainty shock is compared to vector autoregression estimations on actual data, showing a good match in both magnitude and timing. The paper also jointly estimates labor and capital adjustment costs (both convex and nonconvex). Ignoring capital adjustment costs is shown to lead to substantial bias, while ignoring labor adjustment costs does not.”
Required Reading(s)
Student Seminar #5: Tunneling (Fraud)
| Date | Time | Presenter | Location |
|---|---|---|---|
Monday, April 08, 2019 | 12:30 – 13:30 | Esmaeil Aliabadi | Khatam University (@ 17 Daneshvar), 7th Floor, Seminar Room |
“Owners of business groups are often accused of expropriating minority shareholders by tunneling resources from firms where they have low cash flow rights to firms where they have high cash flow rights. In this paper we propose a general methodology to measure the extent of tunneling activities. The methodology rests on isolating and then testing the distinctive implications of the tunneling hypothesis for the propagation of earnings shocks across firms within a group. When we apply our methodology to data on Indian business groups, we find a significant amount of tunneling, much of it occurring via nonoperating components of profit.”
Required Reading(s)
Student Seminar #4: Improving the Design of Conditional Transfer Programs
| Date | Time | Presenter | Location |
|---|---|---|---|
Monday, February 25, 2019 | 12:30 – 13:30 | Mohammad Majidi | Khatam University (@ 17 Daneshvar), 7th Floor, Seminar Room |
“Using a student level randomization, we compare three education-based conditional cash transfers designs: a standard design, a design where part of the monthly transfers are postponed until children have to re-enroll in school, and a design that lowers the reward for attendance but incentivizes graduation and tertiary enrollment. The two nonstandard designs significantly increase enrollment rates at both the secondary and tertiary levels while delivering the same attendance gains as the standard design. Postponing some of the attendance transfers to the time of re-enrollment appears particularly effective for the most at-risk children.”
Student Seminar #3: Beauty Is a Beast, Frog Is a Prince: Assortative Matching with Nontransferabilities
| Date | Time | Presenter | Location |
|---|---|---|---|
Monday, February 18, 2019 | 12:30 – 13:30 | Amirreza Ahmadzadeh Pedram Pooyafar | Khatam University (@ 17 Daneshvar), 7th Floor, Seminar Room |
“We present sufficient conditions for monotone matching in environments where utility is not fully transferable between partners. These conditions involve complementarity in types not only of the total payoff to a match, as in the transferable utility case, but also in the degree of transferability between partners. We apply our conditions to study some models of risk sharing and incentive problems.”
Required Reading(s)
Student Seminar #2: Do Director Elections Matter?
| Date | Time | Presenter | Location |
|---|---|---|---|
Monday, February 04, 2019 | 12:30 – 13:30 | Peyman Shahidi | Khatam University (@ 17 Daneshvar), 7th Floor, Seminar Room |
“Using a hand-collected sample of election nominations for more than 30,000 directors over the period 2001–2010, we construct a novel measure of director proximity to elections called Years-to-election. We find that the closer directors of a board are to their next elections, the higher CEO turnover-performance sensitivity is. A series of tests, including one that exploits variation in Years-to-election that comes from other boards, supports a causal interpretation. Further analyses show that other governance mechanisms do not drive the relation between board Years-to-election and CEO turnover-performance sensitivity. We conclude that director elections have important implications for corporate governance.”
Required Reading(s)
Student Seminar #1: Does Shareholder Composition Matter?
| Date | Time | Presenter | Location |
|---|---|---|---|
Monday, January 28, 2019 | 12:30 – 14:00 | M. M. Shahrabi | Khatam University (@ 17 Daneshvar), 7th Floor, Seminar Room |
“We examine whether institutional ownership composition is related to parameters of the market reaction to negative earnings announcements. When firms report earnings below analysts’ expectations, the stock price response is more negative for firms with higher levels of ownership by momentum or aggressive growth investors. There is no evidence, however, that these institutions cause an “overreaction” to earnings news. Ownership structure is also related to trading volume and to stock price volatility on days around earnings announcements. Our findings are consistent with the idea that the composition of institutional shareholders effects stock price behavior around the release of corporate information.”
Meeting #8: UBI (Part 1)
| Date | Time | Location |
|---|---|---|
Wednesday, November 14, 2018 (23 Aban 1397) | 11:00 – 12:00 | Khatam University (New Building @ 17 Daneshvar), 7th Floor, TAs Room |
“Should developing countries give everyone enough money to live on? Interest in this idea has grown enormously in recent years, reflecting both positive results from a number of existing cash transfer programs and also dissatisfaction with the perceived limitations of piecemeal, targeted approaches to reducing extreme poverty. We discuss what we know (and what we do not) about three questions: what recipients would likely do with the incremental income, whether this would unlock further economic growth, and whether giving the money to everyone (as opposed to targeting it) would be wise. ”
Required Reading(s)
Meeting #7: Informational Cascade
| Date | Time | Location |
|---|---|---|
Wednesday, October 24, 2018 (02 Aban 1397) | 11:00 – 12:00 | Khatam University (New Building @ 17 Daneshvar), 7th Floor, TAs Room |
“An informational cascade occurs when it is optimal for an individual, having observed the actions of those ahead of him, to follow the behavior of the preceding individual without regard to his own information. We argue that localized conformity of behavior and the fragility of mass behaviors can be explained by informational cascades.”
Required Reading(s)
Meeting #6: Behavioral Economics (Part 1)
| Date | Time | Location |
|---|---|---|
Wednesday, October 03, 2018 (11 Mehr 1397) | 11:00 – 12:00 | Khatam University (New Building @ 17 Daneshvar), 7th Floor, TAs Room |
Thaler, Richard H. and Sendhil Mullainathan. “Behavioral Economics.” In International Encyclopedia of the Social and Behavioral Sciences. Edited by Neil Smelser and Paul Bates, (2001).
Required Reading(s)
Meeting #5: Uncertainty Traps
| Date | Time | Location |
|---|---|---|
Monday, September 10, 2018 (19 Shahrivar 1397) | 15:00 – 16:00 | Khatam University, Room 202 |
“We develop a theory of endogenous uncertainty and business cycles in which short-lived shocks can generate long-lasting recessions. In the model, higher uncertainty about fundamentals discourages investment. Since agents learn from the actions of others, information flows slowly in times of low activity and uncertainty remains high, further discouraging investment. The economy displays uncertainty traps: self-reinforcing episodes of high uncertainty and low activity. Although the economy recovers quickly after small shocks, large temporary shocks may have long-lasting effects on the level of activity. The economy is subject to an information externality but uncertainty traps may remain in the efficient allocation. Embedding the mechanism in a standard business cycle framework, we find that endogenous uncertainty increases the persistence of large recessions and improves the performance of the model in accounting for the Great Recession.”
Required Reading(s)
Meeting #4: The Economist as Plumber
| Date | Time | Location |
|---|---|---|
Monday, August 20, 2018 (29 Mordad 1397) | 15:00 – 16:00 | Khatam University, Room 202 |
“As economists increasingly help governments design new policies and regulations, they take on an added responsibility to engage with the details of policy making and, in doing so, to adopt the mindset of a plumber. Plumbers try to predict as well as possible what may work in the real world, mindful that tinkering and adjusting will be necessary since our models gives us very little theoretical guidance on what (and how) details will matter. This essay argues that economists should seriously engage with plumbing, in the interest of both society and our discipline.”
Required Reading(s)
Meeting #3: Global Games: Theory and Applications
| Date | Time | Location |
|---|---|---|
Monday, August 13, 2018 (22 Mordad 1397) | 15:00 – 16:00 | Khatam University, Room 202 |
Global games can be applied to the study of bank runs, bubbles, currency crises, political riots, revolutions, and any other economic situation which displays strategic complementarity. In this meeting, we discuss both the theory and its applications.
Meeting #2: Government Guarantees and Financial Stability
| Date | Time | Location |
|---|---|---|
Monday, July 23, 2018 (01 Mordad 1397) | 15:00 – 16:00 | Khatam University, Room 202 |
“Government guarantees to financial institutions are common all over the world. The recent financial crisis has led to renewed interest and debate about their role and their desirability. On the one hand, government guarantees are thought to have a positive role in preventing panic among investors, and hence help stabilize the financial system. On the other hand, they may distort banks incentives, thus leading to an increase in financial fragility.” This paper provides a framework to study the effects of government guarantees on banks’ and depositors’ behavior.
Required Reading(s)
Meeting #1: Blockchain (Part 1)
| Date | Time | Location |
|---|---|---|
Monday, July 02, 2018 (11 Tir 1397) | 15:00 – 16:00 | Khatam University, Room 202 |
Although blockchain, cryptocurrencies’ underlying technology, has been widely covered in the media, its economics hasn’t been properly studied, yet. Consequently, blockchain will be a recurring theme in our reading group meetings. In this (the first) meeting, we review the basics of blockchain before our discussion of the assigned paper begins.
Required Reading(s)