Found 23 article(s) for author 'Risk'

VC: An American History

VC: An American History. Tom Nicholas, 2019, Book, “A major exploration of venture financing, from its origins in the whaling industry to Silicon Valley, that shows how venture capital created an epicenter for the development of high-tech innovation. VC tells the riveting story of how the industry arose from the United States’ long-running orientation toward entrepreneurship. Venture capital has been driven from the start by the pull of outsized returns through a skewed distribution of payoffs―a faith in low-probability but substantial financial rewards that rarely materialize. Whether the gamble is a whaling voyage setting sail from New Bedford or the newest startup in Silicon Valley, VC is not just a model of finance that has proven difficult to replicate in other countries. It is a state of mind exemplified by an appetite for risk-taking, a bold spirit of adventure, and an unbridled quest for improbable wealth through investment in innovation.Link

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Fretting about Modest Risks Is a Mistake

Fretting about Modest Risks Is a Mistake. Matthew Rabin, Max Bazerman, April 29, 2019, “Managers often engage in risk-averse behavior, and economists, decision analysts, and managers treat risk aversion as a preference. In many cases, acting in a risk-averse manner is a mistake, but managers can correct this mistake with greater reflection. This article provides guidance on how individuals and organizations can move toward greater reflection and a more profitable aggregate portfolio of decisions. Inconsistency in risk preferences across decisions is a costly mistake for both individuals and for organizations.Link

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Disaster Probability and Options-Pricing with Disaster Risk

Disaster Probability and Options-Pricing with Disaster Risk. Robert Barro, April 2019, Paper, “We derive a new option-pricing formula from recursive preference and estimate disaster probability from option prices. The new options-pricing formula applies to far-out-of-the money put options on the stock market when disaster risk dominates, the size distribution of disasters follows a power law, and the economy has a representative agent with Epstein-Zin utility. The formula conforms with data on put-options prices for the U.S. S&P index from 1983 to 2018 and for analogous indices for other countries starting in the mid-1990s. The estimated disaster probability, inferred from monthly fixed effects, is highly correlated across countries and peaks during the financial crisis of 2008-09. The estimated disaster probability forecasts downside risk in the economy. Using quantile regressions, we find that the disaster probability forecasts growth vulnerabilities, defined GDP and Industrial Production growth at the lowest decile.Link

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Dodd-Frank regulations good and bad for financial system, Harvard director says

Dodd-Frank regulations good and bad for financial system, Harvard director says. Hal Scott, September 11, 2018, Video, “Hal Scott, director of the program on International Financial Systems at Harvard Law School, and Sebastian Mallaby, the Paul A. Volcker Senior Fellow for International Economics at the Council on Foreign Relations, discuss what triggered the financial crisis in 2008 and if we are safe from another.Link

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Heuristics and Public Policy: Decision Making Under Bounded Rationality

Heuristics and Public Policy: Decision Making Under Bounded Rationality. Cass Sunstein, June 18, 2018, Paper, “How do human beings make decisions when, as the evidence indicates, the assumptions of the Bayesian rationality approach in economics do not hold? Do human beings optimize, or can they? Several decades of research have shown that people possess a toolkit of heuristics to make decisions under certainty, risk, subjective uncertainty, and true uncertainty (or Knightian uncertainty). We outline recent advances in knowledge about the use of heuristics and departures from Bayesian rationality, with particular emphasis on growing formalization of those departures, which add necessary precision.” Link

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Social Risk, Fiscal Risk, and the Portfolio of Government Program

Social Risk, Fiscal Risk, and the Portfolio of Government Program. Samuel Hanson, David Scharfstein, Adi Sunderam, June 2018, Paper, “We develop a model of government portfolio choice in which a benevolent government chooses the scale of risky projects in the presence of market failures and tax distortions. These two frictions generate motives to manage social risk and scale risk. Social risk management makes attractive programs that ameliorate market failures in bad economic times. Fiscal risk management makes unattractive programs that entail large government outlays at times when other programs in the governments portfolio also require large outlays. We characterize the determinants of social and scale risk and argue that these two risk management motives often conflict. Using the model, we explore how the attractiveness of different financial stability programs varies with the governments scale burden and with characteristics of the economy.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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The Heightened Risks of a US Downturn

The Heightened Risks of a US Downturn. Martin Feldstein, January 26, 2018, Opinion, “The US economy has experienced nine recessions during the last 50 years. What makes the current situation unusual and more worrying than in the past is the low level of short-term interest rates and the high (and rising) level of federal debt, which will limit policymakers’ ability to provide the stimulus needed to counter a recession.Link

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Containing Systemic Risk by Taxing Banks Properly

Containing Systemic Risk by Taxing Banks Properly. Mark Roe, November 20, 2017, Paper, “At the root of recurring bank crises are deeply-implanted incentives for banks and their executives to take systemically excessive risk. Since the 2008–2009 financial crisis, regulators have sought to strengthen the financial system by requiring more capital (which can absorb losses from risk-taking) and less risk-taking, principally via command-and-control rules. Yet bankers’ baseline incentives for system-degrading risk-taking remain intact.Link

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Why Financial Markets Underestimate Risk

Why Financial Markets Underestimate Risk. Jeffrey Frankel, September 25, 2017, Opinion, “Today’s economy is in a “risk-on” period, when investors exchange safe-haven assets like US Treasury Bills for riskier ones, from real estate to carry-trade currencies. But when such behavior assumes that economic conditions are more stable than they are, as seems to be the case today, trouble inevitably follows.Link

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