Found 518 article(s) in category 'Financial Services'

Incentivizing Calculated Risk-Taking: Evidence from an Experiment with Commercial Bank Loan Officers

Incentivizing Calculated Risk-Taking: Evidence from an Experiment with Commercial Bank Loan Officers. Shawn Cole, July 2012, Paper. “We conduct an experiment with commercial bank loan officers to test how performance compensation affects risk assessment and lending. High-powered incentives lead to greater screening effort and more profitable lending decisions. This effect is muted, however, by deferred compensation and limited liability, two standard features of loan officer compensation contracts. We find that career concerns and personality traits affect loan officer behavior, but show that the response to incentives does not vary with traits such as risk-aversion, optimism, or overconfidence. Finally, we present evidence that incentives distort the assessment of credit risk, even among professionals with many years of experience.” Link

Tags: , , , ,

The Political Risks of Fighting Market Failures: Subversion, Populism and the Government Sponsored Enterprises

The Political Risks of Fighting Market Failures: Subversion, Populism and the Government Sponsored Enterprises. Edward Glaeser, May 2012, Paper. “There are many possible ways of reforming the Government-Sponsored Enterprises that insure mortgages against default, including a purely public option, complete privatization or a hybrid model with private firms and public catastrophic insurance. If the government is sufficiently capable and benign, either public intervention can yield desirable outcomes; the key risks of any reform come from the political process. This paper examines the political risks, related to corruption and…” Link

Tags: , ,

A tale of two divergences

A tale of two divergences. Alberto Alesina. April 28, 2012. Paper. “The divergence in sovereign spreads across Eurozone members has been the object of much attention. This column looks at divergence across US states and finds that unexpected deficits are correlated with higher state bond yields across all states. This effect is larger for states with left-leaning political systems, suggesting that bond-market participants view political variables as relevant in assessing the risk characteristics of sub-sovereign bonds. One of the casualties of the financial crisis has been the idea that the sovereign debt of industrial economies is safe…”  Link

Tags: , , , ,

Multiple Market-Clearing Prices, Electricity Market Design and Price Manipulation

Multiple Market-Clearing Prices, Electricity Market Design and Price Manipulation. William Hogan, March 31, 2012, Paper. “Integration of physical transactions and financial contracts is central to successful electricity market design. Virtually every energy transaction has some impact on prices. The mere fact that a physical transaction can affect prices to some degree, and thereby influence the prices of related financial contracts, cannot be a per se definition of price manipulation. A principled policy for characterizing price manipulation in organized electricity markets includes a stand-alone profitability test. Multiple…” Link

Tags: ,

Government and Markets: Toward a New Theory of Regulation

Government and Markets: Toward a New Theory of Regulation. David Moss, January 2012, Book. “As the financial crisis has shown, neither traditional market failure models nor public choice theory, by themselves, sufficiently inform or explain our current regulatory challenges, nor point us toward the best solutions. Regulatory studies, long neglected in an atmosphere focused on deregulatory work, are in critical need of new models and theories that can guide effective policymaking. This interdisciplinary volume points the way toward the modernization of regulatory theory: its essays…” May require purchase or user account. Link verified March 26, 2014

Tags: , , ,

Causes of Financial Crises Past and Present: The Role of the This-Time-Is-Different Syndrome

Causes of Financial Crises Past and Present: The Role of the This-Time-Is-Different Syndrome. Carmen M. Reinhart, Kenneth Rogoff, 2012, Book Chapter. “The financial press has often characterized the 2007—2008 United States subprime mess as a new breed of crisis. Indeed, this view often points to the international repercussions of the U.S.-based crisis as evidence that the globalization of financial portfolios has introduced new channels for spillovers that were never present before. In light of the unfolding Greek tragedy, there is also considerable confusion in academic and policy circles as to whether the…” Link

Tags: , , , ,

The Turkish Economy After the Crisis

The Turkish Economy After the Crisis. Dani Rodrik, Paper, January 2012. “The global financial crisis has demonstrated that a financially open economy has many areas of vulnerability. Even when a country keeps its own house in order, it remains at the mercy of developments in external financial markets. So, one lesson to bear in mind is that policymakers need to guard against not just domestic shocks, but also shocks that emanate outward from financial instability elsewhere. To accomplish this, complete financial openness is not the best policy. A second lesson is that Turkey’s prevailing growth strategy can neither be sustained…” Link

Tags:

Housing Collateral, Credit Constraints and Entrepreneurship – Evidence from a Mortgage Reform

Housing Collateral, Credit Constraints and Entrepreneurship – Evidence from a Mortgage Reform,  Ramana Nanda, September 2011, Paper, “We study how a mortgage reform that exogenously increased access to credit had an impact on entrepreneurship, using individual-level micro data from Denmark. The reform allows us to disentangle the role of credit access from wealth effects that typically confound analyses of the collateral channel. We find that a $30,000 increase in credit availability led to a 12 basis point increase in entrepreneurship, equivalent to a 4% increase in the number of entrepreneurs… Link

Tags: , , ,

Cyclicality of Credit Supply: Firm Level Evidence

Cyclicality of Credit Supply: Firm Level Evidence. Victoria Ivashina, August 23, 2011, Paper. “Theory predicts that there is a close link between bank credit supply and the evolution of the business cycle. Yet fluctuations in bank-loan supply have been hard to quantify in the time- series. While loan issuance falls in recessions, it is not clear if this is due to demand or supply. We address this question by studying firms’ substitution between bank debt and non-bank debt (public bonds) using firm-level data. Any firm that raises new debt must have a positive demand for external funds. Conditional on issuance of new debt, we interpret firm’s switching…” Link

Tags: , , , , , ,

The “CAPS” Prediction System and Stock Market Returns

The “CAPS” Prediction System and Stock Market Returns. Christopher Avery, Richard Zeckhauser, July 2011, Paper. “We study the predictive power of approximately 2.5 million stock picks submitted by individual users to the “CAPS” website run by the Motley Fool company (www.caps.fool.com). These picks prove to be surprisingly informative about future stock prices. Indeed, a strategy of shorting stocks with a disproportionate number of negative picks on the site and buying stocks with a disproportionate number of positive picks produces a return of over nine percent per annum over the sample period. These results…” Link

Tags: , ,