Found 516 article(s) in category 'Financial Services'

Financing the Response to Climate Change: The Pricing and Ownership of U.S. Green Bonds

Financing the Response to Climate Change: The Pricing and Ownership of U.S. Green Bonds. Malcolm Baker, George Serafeim, April 27, 2018, Paper, “Estimates suggest that mitigating and adapting to climate change will cost trillions of dollars. We study the developing market for green bonds, which are bonds whose proceeds are used for environmentally sensitive purposes. After an overview of the U.S. corporate and municipal green bonds market, we study pricing and ownership patterns of municipal green bonds using a framework that incorporates assets with nonpecuniary
sources of utility. The results support the prediction that green bonds are issued at a premium to otherwise similar ordinary bonds—that is, with lower yields—on an after-tax basis.Link

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Issuer Default Risk and Rating Agency Conflicts

Issuer Default Risk and Rating Agency Conflicts. Anywhere Sikochi, April 2018, Paper, “This study examines whether rating agencies assign more stringent and accurate rating adjustments for issuers with higher default risk and whether this leads to adjustments that are more relevant to financial markets. We expect that rating agencies will make more informative subjective adjustments to limit their reputational risk for issuers with a higher likelihood of default—an event that can reveal the quality of assigned ratings. For defaulting issuers, especially those with a higher pre-failure default risk, we find that adjustments grow more stringent and accurate in the months leading up to default and better predict lender default recovery rates.Link

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The boom in Puerto Rican debt has nothing to do with reality

The boom in Puerto Rican debt has nothing to do with reality. Lawrence Summers, April 17, 2018, Opinion, “Desmond Lachman, Brad Setser and Antonio Weiss have written a very strong analysis of the Puerto Rico situation. If ever there was a disconnect between underlying reality and what is happening in financial markets, it is the boom in Puerto Rican debt that has nearly doubled the value of some of its debt securities during the past few months.” Link

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Making Sense of Soft Information: Interpretation Bias and Loan Quality

Making Sense of Soft Information: Interpretation Bias and Loan Quality. Dennis Campbell, April 2018, Paper, “We explore whether behavioral biases impede the effective processing and interpretation of soft information in private lending. Taking advantage of the internal reporting system of a large federal credit union, we delineate three important biases likely to affect the lending process: (1) limited attention (or distraction), (2) task-specific human capital, and (3) common identity. Specifically, we find that using soft information in lending decisions leads to worse loan quality when loan officers are busy or before weekends and around national holidays; when loan officers had earlier sales experience; and when both officers and borrowers are men. Overall, we provide novel evidence of non-agency-related costs in the use of soft information in lending decisions.Link

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A Measure of Risk Appetite for the Macroeconomy

A Measure of Risk Appetite for the Macroeconomy. Emil Siriwardane, Adi Sunderam, March 2018, Paper, “We document a strong and robust positive relationship between the one-year real rate and the contemporaneous valuation of volatile stocks, which we contend measures the economy’s risk appetite. Our novel proxy for risk appetite explains 41% of the variation in the real rate since 1970, while the valuation of the aggregate stock market explains just 1%. In addition, the real rate forecasts returns on volatile stocks, confirming our interpretation that changes in risk appetite drive the real rate. Increases in our measure of risk appetite are followed by a boom in investment and output.Link

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Corporate Bond Liquidity: A Revealed Preference Approach

Corporate Bond Liquidity: A Revealed Preference Approach. Adi Sunderam, March 20, 2018, Paper, “We propose a novel measure of bond market liquidity that does not depend on transaction data. Capturing how the strength of the relation between mutual fund cash holdings and uncertainty about fund flows varies in the cross section, our measure reflects funds’ perceived illiquidity of their portfolio holdings at a given point in time. Speculative grade and smaller bonds are perceived to be significantly less liquid, with the illiquidity of speculative grade bonds in particular deteriorating in the post-crisis period.Link

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On the Direct and Indirect Real Effects of Credit Supply Shocks

On the Direct and Indirect Real Effects of Credit Supply Shocks. Laura Alfaro, March 5, 2018, Paper, “We consider the real effects of bank lending shocks and how they permeate the economy through buyer-supplier linkages. We combine administrative data on all firms in Spain with a matched bank-firm-loan dataset incorporating information on the universe of corporate loans for 2003-2013. Using methods from the matched employer-employee literature for handling large data sets, we identify bank-specific shocks for each year in our sample. Combining the Spanish Input-Output structure and firm-specific measures of upstream and downstream exposure, we construct firm-specific exogenous credit supply shocks and estimate their direct and indirect effects on real activity.Link

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Sources of Inaction in Household Finance: Evidence from the Danish Mortgage Market

Sources of Inaction in Household Finance: Evidence from the Danish Mortgage Market. John Y. Campbell, March 2018, Paper, “A common problem in household finance is that households are often inactive in response to incentives. Mortgages are generally the largest household liability, and mortgage refinancing is an important channel for monetary policy transmission, so inactivity in this setting can be socially costly. We study how the Danish population responds to mortgage refinancing incentives between 2010 and 2014, building an empirical model that separately estimates time-dependent inaction (a low probability of responding to a refinancing incentive in a given quarter), and state-dependent inaction (a psychological addition to the financial cost of refinancing)Link

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The Changing Landscape of Auditor Liability

The Changing Landscape of Auditor Liability. Suraj Srinivasan, March 1, 2018, Paper, “We document the declining role of Rule 10b-5 (a general catch-all antifraud provision) in securities class-action lawsuits against auditors since the passage of the PSLRA. The decline is perhaps most noticeable in dismissal rates, which increased monotonically over each three-year period from 1996 to 2013. Further, the likelihood that an auditor will be sued following a severe restatement has significantly declined, and settlements have decreased. One explanation for this trend is the recent wave of Supreme Court cases limiting the scope of Rule 10b-5 against private actors.Link

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