CEF.UP – FIN Seminar/Webinar

Thursday – November 30^th, 2023 at 1:00 p.m. | Room 305| Online

Design risk: the curse of CPPIs

Raquel Gaspar– ISEG, Universidade de Lisboa

Abstract:

“This study underscores the notion that inadequately designed structured products or investment strategies have the potential to expose investors to unintended risks. Within this context, we introduce the concept of design risk into the portfolio insurance literature.

Specifically, our analysis focuses on Constant Proportion Portfolio Insurance (CPPI) structures and draws comparisons with classical Option-Based Portfolio Insurance (OBPI) as well as naive strategies like Stop-Loss Portfolio Insurance (SLPI) or CPPI with a multiplier set at one.

To assess the effectiveness of these strategies, we employ conditional Monte Carlo simulations to control the terminal value of the underlying asset. Our findings reveal a noteworthy phenomenon: even in scenarios where the terminal value of the underlying asset exceeds several times its initial value, CPPI strategies can lead to a cash-lock situation. The probability of getting cash-locked is influenced more by the multiplier’s magnitude and the investment horizon than by the dynamics of the underlying asset.”

CEF.UP – FIN Seminar/Webinar

Thursday – October 26^th, 2023 at 1:00 p.m. | Room 305| Online

“Housing and Savings Behavior Across Family Types“

Annika Bacher– BI Norwegian Business School

Abstract:

“Does marital status affect households’ investment choices? Is accounting for distinct family types necessary for the correct evaluation of policies that aim at stimulating housing demand? To answer these questions, I develop a life-cycle model of housing and financial portfolio choice with dynamic and heterogeneous family types. I find that divorce risk encourages couples to accumulate liquid financial assets and reduces their demand for illiquid housing. Expected marriage, low income levels, and larger exposure to income fluctuations prevent singles from becoming homeowners. Abstracting from distinct family types amplifies the attractiveness of housing and, as a result, overstates the effectiveness of housing policies such as lowering property taxes and reducing transaction costs. Importantly, this misspecification is largest for young households who are often directly targeted by policies that aim at increasing homeownership rates.”

CEF.UP – FIN Seminar/Webinar

Thursday – October 12^th, 2023 at 1:00 p.m. | Room 305| Online

Title – The World’s Most Ethical Companies financial performance

Nelson Areal  – Universidade do Minho

“The financial consequences of embracing ethical conduct in business remain a point of contention in the literature. We discuss why ethical companies can have advantages over others by exploring three concurrent dimensions: organizational values, stakeholder management, and good reputation. We evaluate the long-term financial performance of the World’s Most Ethical Companies, a list devised by Ethisphere, using a calendar time portfolio returns. We compare the performance of these companies to a matching sample and, following Mitton (2022), perform a large study to examine the impact of methodological choices when constructing the matching sample on the results. We show that these choices can have a significant impact on results. Overall, the portfolio of these companies overperform the market, but their performance is not different from matched samples.”

CEF.UP – FIN Seminar/Webinar

Thursday – September 28^th, 2023 at 1:00 p.m. | Room 305| Online

“First and Second Mover Advantages in Strategic Investment under Uncertainty”

Peter Kort  – Tilburg University (joint work with Berend J. Stofferis, and Jacco J.J. Thijssen)

Abstract:

“We study a strategic duopoly investment game in which two firms decide on timing and size of an investment under iso-elastic demand. We find that, in equilibrium, investment can be preemptive or resulting from a war of attrition. This contrasts with existing literature that only finds preemptive investment. We show numerically that the presence of a second mover advantage can delay investment inefficiently long from a social welfare perspective.”

CEF.UP – FIN Seminar/Webinar

Thursday – June 15^th, 2023 at 1:00 p.m. | Room 305| Online

“M&A premiums: do Asian companies bid higher?”

Conrado García-Gómez  – Cef.up and University of Valladolid (joint work with Jorge Farinha, Ender Demir and José María Díez-Esteban)

Abstract:

“This study aims to investigate whether Asian companies pay higher premiums in cross-border M&A. We uniquely compare whether the cultural origin of the acquirer firm is a relevant determinant of the premium paid, namely for cross-border operations generated in Asia, Europe, and the United States. Using a large sample of cross-border M&A during the period 2003 to 2021, our baseline results suggest that the average premiums paid by Asian companies are double the size of the European or USA acquisition premiums. Our results are robust when considering some deal characteristics and for the case of Chinese and Japanese acquirers. We also find support for considering that, besides of economic motives, state-owned Chinese acquirers play a relevant role when involved in cross-border M&A, namely offering higher bids. Our research has some relevant implications not only for practitioners, but also for policy-makers.”

CEF.UP – FIN Seminar/Webinar

Thursday – June 1^st, 2023 at 1:00 p.m. | Room 305| Online

“Carbon Transition Risk and Net-Zero Portfolios”

Marcin Kacperczyk  –  Imperial College London and CEPR

Abstract:

“Net-zero portfolios are becoming a popular vehicle to align investors’ incentives with climate scenarios. We show that the decision and timing to divest companies from NZ portfolios has a strong economic implication for their stock returns. This divestment process is captured in our new, forward-looking measure, distance-to-exit (DTE), which measures the distance in years until company gets excluded from the NZ portfolio. We show that companies with greater values of DTE have higher valuation ratios and higher expected returns consistent with the idea that DTE captures transition risk. The effect is robust to different specifications of divestment hierarchy and holds after controlling for alternative measures of transition risk, such as emission levels, their growth, and intensity. Overall, we conclude that institutional investors’ pressure is already priced in stock returns.”

CEF.UP – FIN Seminar/Webinar

Thursday – May 25^th, 2023 at 1:00 p.m. | Room 305| Online

“Private Equity Debt Funds: Who Wins and Who Loses?”

Florencio Lopez-de-Silanes  – SKEMA Business School – Université Côte d’Azur, and NBER (joint work with Axel Buchner and Armin Schwienbacher)

Abstract:

“We exploit a unique data set to provide the first analysis of the structure, performance and gain distribution of deals financed by the same private equity firm on the equity and debt sides (related deals). Most related deals are carried out by a few large and experienced PE firms. In support of the conflict of interest hypothesis, we document a transfer of value from debt to equity funds in related transactions relative to unrelated transactions. Yet, the overall value impact of related deals (debt and equity combined) is positive and limited partners of PE-affiliated debt funds do not loose overall. Related deals generate sizable gains for PE firms, most likely through the better ex-post incentives of these deals.”

CEF.UP – FIN Seminar/Webinar

Thursday – May 4^th, 2023 at 1:00 p.m. | Room 305| Online

“Macroeconomic Announcements and the News that Matters Most to Investors“

Rik Frehen  – Tilburg University (joint work with Samia Badidi and Martijn Boons)

Abstract:

“We study a large set of macroeconomic announcements (MAs), disentangle their news content, and estimate risk premia for each type of news in the cross-section of stocks. Our most interesting finding is that a portfolio that pays off around MAs that negatively impact the stock market commands a large and positive risk premium. Adding this portfolio to a position in the stock market substantially increases the Sharpe ratio, while reducing price impact exposure to MAs. We argue that this portfolio is risky, consistent with models of reinvestment risk. Our findings challenge equilibrium models predicting a negative relation between shocks to discount rates and marginal utility as well as stories of cash ow news arriving on MA days.”

CEF.UP – FIN Seminar/Webinar

Thursday – April 20^th, 2023 at 1:00 p.m. | Room 305| Online

“Political connections and shareholder support“

Anders Löflund  – Hanken School of Economics (joint work with Magnus Blomkvist, Eva Liljeblom and Etienne Redor)

Abstract:

“We study investors’ preferences for corporate political connections in the U.S. using a novel measure; shareholder votes given to individual directors. We find that, after fully accounting for all firm-year specific information and a wide range of director characteristics, that politically connected directors on average do not obtain significantly greater shareholder support. However, during the time-period 2010 to 2016 the board elections echo the nationwide political climate, as directors with ties to the Democratic party receive more shareholder votes. We also find that shareholders have a stronger preference for politically connected directors in heavily regulated industries, suggesting that board members closer to the incumbent government can alleviate regulatory risk. Our study has implications for director selection and the role of political connections in shaping corporate governance practices.”

CEF.UP – FIN Seminar/Webinar

Thursday – April 13^th, 2023 at 1:00 p.m. |Room 305| Online

“Sustainability or Performance: Ratings and Fund Managers’ Incentives”

 Nickolay Gantchev  – Warwick Business School  (joint work with Mariassunta Giannetti and Rachel Li)

Abstract:

“We explore how mutual fund managers and investors react when the tradeoff between a fund’s sustainability and performance becomes salient. Following the introduction of Morningstar’s sustainability ratings (the “globe” ratings), mutual funds increased their holdings of sustainable stocks to attract flows. Such sustainability-driven trades, however, underperformed, impairing the funds’ overall performance. Consequently, a tradeoff between sustainability and performance emerged. In the new equilibrium, the globe ratings do not affect investor flows and funds no longer trade to improve their globe ratings.”

CEF.UP – FIN Seminar/Webinar

Thursday – March 9^th, 2023 at 1:00 p.m. |Room 305| Online

“Corporate Taxation and Carbon Emissions“

Julien Sauvagnat – Bocconi University (joint work with Luigi Iovino and Thorsten Martin)

Abstract:

“We study the relationship between corporate taxation and carbon emissions in the U.S. We show that dirty firms pay lower profit taxes. This relationship is driven by dirty firms benefiting disproportionately more from the tax shield of debt due to their higher leverage. In addition, we document that the higher leverage of dirty firms is fully accounted for by the larger share of tangible assets owned by such firms. We build a general-equilibrium multi-sector economy and show that a revenue-neutral increase in profit taxation could lead to large decreases in aggregate carbon emissions without any noticeable change in GDP.”

CEF.UP – FIN Seminar/Webinar

Thursday – February 9^th, 2023 at 1:00 p.m. |Room 305| Online

“Incomplete supervisory cooperation“

Wolf Wagner – Rotterdam School of Management and CEPR (joint work with Thorsten Beck and Consuelo Silva-Buston)

Abstract:

“Banking supervisors frequently cooperate across countries, but cooperation only imperfectly covers the global operations of large banking groups. We show that this causes significant third-country externalities. Using hand-collected supervisory cooperation data, we document that banking groups shift lending activities and risk into third-country subsidiaries when cooperation agreements cover their operations in other countries. The implied country-level increase in the share of foreign loans is 16%. We also show that countries do not internalize third-country effects when making cooperation decisions, resulting in a 26 percentage point higher propensity to cooperate. Overall, our results highlight a need for “cooperating on cooperation.”