Reading Group

Student Seminar #12: Manipulation and the Allocational Role of Prices

Monday, October 14, 2019
(22 Mehr 1398)
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. “

Required Reading(s)
Manipulation and the Allocational Role of Prices


Student Seminar #11: Anticompetitive Effects of Common Ownership

Monday, October 07, 2019
(15 Mehr 1398)
12:30 – 13:30Esmaeil AliabadiKhatam 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.”

Required Reading(s)
Anticompetitive Effects of Common Ownership


Student Seminar #10: How Smart Is Smart Money?

Monday, September 30, 2019
(08 Mehr 1398)
12:30 – 13:30Ramtin SalamatKhatam 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.”

Required Reading(s)How Smart Is Smart Money? A Two‐Sided Matching Model of Venture Capital


Group Meeting #9: Margin Requirements, Speculative Trading, and Stock Price Fluctuations: The Case of Japan

Sunday, August 25, 2019
(03 Shahrivar 1398)
12:30 – 13:30Khatam 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.”

Required Reading(s)Margin Requirements, Speculative Trading, and Stock Price Fluctuations: The Case of Japan


Student Seminar #9: Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency

Sunday, August 11, 2019
(20 Mordad 1398)
12:30 – 13:30Mohammadreza SalehiKhatam 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)Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency


Student Seminar #8: The Rate of Return on Everything, 1870–2015

Sunday, August 04, 2019
(13 Mordad 1398)
12:30 – 13:30Vahid RostamKhatam 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)The Rate of Return on Everything, 1870-2015


Student Seminar #7: The Growth Potential of Startups over the Business Cycle

Monday, May 06, 2019

(16 Ordibehesht 1398)

12:30 – 13:30Ramtin SalamatKhatam 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)The Growth Potential of Startups over the Business Cycle

Student Seminar #6: The Impact of Uncertainty Shocks

Monday, April 22, 2019

(02 Ordibehesht 1398)

12:30 – 13:30Mohammad SadeghiKhatam 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)The Impact of Uncertainty Shocks

Student Seminar #5: Tunneling (Fraud)

Monday, April 08, 2019

(19 Farvardin 1398)

12:30 – 13:30Esmaeil AliabadiKhatam 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)Ferreting Out Tunneling: An Application to Indian Business Groups

Student Seminar #4: Improving the Design of Conditional Transfer Programs

Monday, February 25, 2019

(06 Esfand 1397)

12:30 – 13:30Mohammad MajidiKhatam 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.”

Required Reading(s)Improving the Design of Conditional Transfer Programs: Evidence from a Randomized Education Experiment in Colombia