Finance seminars

Below is a list of upcoming finance seminars hosted by the Finance Discipline Group. All seminars unless stated otherwise are held from 12-1pm in:

Room D301
Level 3, Block D
1-59 Quay St
Haymarket, Sydney Australia

Access to seminars is by invitation. Please contact Lakmali Dias for further details.

If you want to present a paper at our seminar series please contact Dirk Baur.

2012

Speaker: Josie Smith, New York University
Title: "The Term Structure of Money Market Spreads During the Financial Crisis"
Date: 30 May 2012
Abstract: I estimate a no-arbitrage model of the term structure of money market spreads during the recent financial crisis to identify how much of the sharp movements in spreads can be attributed to observable interest rate, credit, and liquidity factors. The restrictions of the model imply that longer-term spreads are linear, risk-adjusted expected values of future short-term spreads. In addition, the linear representation of spreads can be partitioned into two distinct components: one related to time-varying expectations of spreads, and the second to time-variation in risk premia. Estimation of the model highlights the importance of time-variation in risk premia. Up to 50% of the variation of spreads is explained by time-varying risk premia, and risk premia has significant predictive power for spreads.

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Speaker: Gjergi Cici, Mason School of Business, The College of William and Mary
Title: "The Valuation of Hedge Funds' Equity Positions"
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Date: 16 May 2012
Abstract: We provide evidence on the valuation of equity positions by hedge fund advisors. Reported valuations deviate from standard valuations based on closing prices from CRSP for roughly seven percent of the positions. These deviations are economically significant for about 25 percent of the hedge fund advisors. Advisors with more pronounced valuation deviations show a stronger discontinuity in their reported returns around zero, manage a higher fraction of potentially fraudulent funds, show smoother reported returns, self-report to commercial databases, and are domiciled in offshore locations. Additional tests suggest that the documented equity valuation deviations respond to past performance.

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Speaker: Ro Gutierrez, University of Oregon
Title: "The Aggregate Information in Unexpected Media Coverage of Firms' Earnings Reports"
Date: 9 May 2012
Abstract: Economists have recently begun to explore the roles of the financial media in the stock market. We extend this line of inquiry by assessing the aggregate information contained in the Wall Street Journal's decisions to cover firms' earnings reports. Since the information in earnings announcements varies across firms and time, we first measure unexpected coverage of each firm's announcement and then aggregate unexpected coverage across firms each month. The resulting measure quantifies the monthly flow of market-wide information regarding stock valuation -- arising from the Wall Street Journal's perception of the informativeness of the earnings reports. In months when the level of coverage is surprisingly high, returns on the CRSP value-weighted index are high and continue to be high for roughly six months. The six-month predictability in returns seems due to the persistence in the flow of market-wide news rather than aggregate media coverage capturing investor sentiment. We conclude that high aggregate unexpected coverage identifies periods of high valuation uncertainty and that high returns are compensation for bearing this time-varying risk. In addition, we find that exposure to this risk varies across stocks and is priced in the cross section of returns. Finally, serial correlation in the index return is highly dependent on our measure of aggregate news flow, switching from positive to negative serial correlation as aggregate unexpected coverage changes from high to low.

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Speaker: Mark Humphery-Jenner, School of Banking and Finance, Australian School of Business, University of New South Wales
Title: "Cross-Border Mergers and Acquisitions: The Role of Private Equity Firms"
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Date: 18 April 2012
Abstract: We study the role of private equity firms in cross-border mergers and acquisitions. We find that private equity-owned firms are more likely to become targets in cross border M&A transactions. This effect is particularly strong in transactions where the target or its shareholders actively reach out for an acquirer. On average, cross-border deals with private equity-involvement are not associated with higher announcement returns. However, announcement returns are higher if the acquirer is owned by a private equity firm and the target is from a country with poor corporate governance. We provide evidence indicating that the international networks and connections that result from prior cross-border deals can explain why private equity firms create value in such deals. Our findings suggest that private equity firms can help to reduce information asymmetries in certain cross-border M&A deals. We perform several tests to address possible endogeneity concerns.

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Speaker: Jonathan Dark, Department of Finance, University of Melbourne
Title: "Modeling the Joint Dynamics of Spot and Futures Markets with a Regime Switching Long Memory Volatility Process"
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Date: 11 April 2012
Abstract: The methods used to model the dynamics of spot and futures markets ignore the effect of changes in the cost of carry (COC) on the dynamics of the basis and its rate of convergence. This is of importance given the historically low short term interest rates currently experienced in many countries. This paper proposes bivariate models that allow for long memory in volatility, basis convergence and structural change. The first model captures regime switches via a latent markov process. The second allows for smooth structural change in volatility via intercepts that have flexible fourier forms. The proposed models are supported by an application to the S&P500. In and out of sample forecasts of the covariance matrix and in sample hedge ratio estimation, support the proposed models over a large number of alternatives. Out of sample hedging performance is comparable to existing methods.

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Speaker: Heitor Almeida, University of Illinois
Title: "Credit Lines as Monitored Liquidity Insurance: Theory and Evidence"
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Date: 4 April 2012
Abstract: We propose and test a theory of corporate liquidity management in which credit lines provided by banks to firms are a form of monitored liquidity insurance. Bank monitoring and resulting credit line revocations help control illiquidity-seeking behavior by firms. Firms with high liquidity risk are likely to use cash rather than credit lines for liquidity management because the cost of monitored liquidity insurance increases with liquidity risk. We exploit a quasi-experiment around the downgrade of General Motors (GM) and Ford in 2005 and find that firms that experienced an exogenous increase in liquidity risk due to the GM-Ford downgrade (specifically, firms that were rated and that relied on bonds for financing in the pre-downgrade period) moved out of credit lines and into cash holdings in the aftermath of the downgrade. We also find support for the model’s other novel empirical implication that firms with low hedging needs (high correlation between cash flows and investment opportunities) are more likely to use credit lines relative to cash, and are also less likely to require covenants and revocations when using credit lines.

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Speaker: John Knight, Department of Economics, University of Western Ontario and Stephen Satchell, Trinity College, Cambridge and University of Sydney
Title: "The Properties of Double-Blind Dutch Auctions in a Clearing House: Some New Results For the Mendelson Model"
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Date: 30 March 2012
Abstract: In this paper, we re-examine Mendelson’s model for the equilibrium price of a double-blind Dutch auction with Poisson-distributed stochastic demand and supply. We present a number of new results. We focus on the various ways that demand and supply cross. We identify four different categories of crossing, extending Mendelson’s results which are based on a single category of crossing. Secondly, conditioning on quantity, we derive the joint distribution of the relevant demand and supply prices associated with such two-sided markets originally described by Bohm-Bawerk (1891). The distributional result is extended to the case where the limit orders on different sides of the market arrive at different rates. Finally, we derive the distributional properties of the price elasticities.

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Speaker: Tarun Chordia, Emory University
Title: "Buyers Versus Sellers: Who Initiates Trades and When?"
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Date: 28 March 2012
Abstract: We study the relation between order imbalance and past returns and firm characteristics and test a number of hypothesis including the disposition effect, momentum and contrarian trading, tax-loss selling and flight-to-quality hypothesis. These hypotheses make predictions about investors’ buy or sell decisions, but previous studies that test these hypotheses use turnover data that combine both buyer and seller-initiated trades. We find that investors behave as contrarians over short horizons and as momentum traders over longer horizons. We find strong support for seasonal tax induced trading but little evidence of flight-to-quality.

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Speaker: Patrick Verwijmeren, VU University Amsterdam
Title: "Dividend-Protected Convertible Bonds and the Disappearance of Call Delay"
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Date: 21 March 2012
Abstract: Firms have not historically forced conversion as soon as possible. Explanations for the delay rely on the size of the dividends bondholders forgo so long as they do not convert. We investigate an important change in convertible security design, namely that more than 95 percent of recent convertible bond issues are dividend-protected. Dividend protection means that the conversion value of the shares into which a bond is convertible is unaffected by dividend payments and dividend-related rationales for call delay become moot. We document that dividend-protected convertibles are called as soon as conversion can be forced.

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Speaker: Russell Davidson, Department of Economics, McGill University
Title: "Bootstrap Confidence Sets"
Date: 14 March 2012
Time: 4-5.30 pm
Paper 1: "Confidence Sets Based on Inverting Anderson-Rubin Tests"
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Abstract: Economists are often interested in the coefficient of a single endogenous explanatory variable in a linear simultaneous-equations model. One way to obtain a confidence set for this coefficient is to invert the Anderson-Rubin test. The “AR confidence sets” that result have correct coverage under classical assumptions. However, AR confidence sets also have many undesirable properties. It is well known that they can be unbounded when the instruments are weak, as is true of any test with correct coverage. But, even when they are bounded, their length may be very misleading, and their coverage conditional on quantities that the investigator can observe, notably the Sargan statistic for over-identifying restrictions, can be far from correct. A similar property manifests itself, for similar reasons, when a confidence set for a single parameter is based on inverting an F test for two or more parameters.

Paper 2: "Bootstrap Confidence Sets with Weak Instruments"
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Abstract: We study several methods of constructing confidence sets for the coefficient of the single right-hand-side endogenous variable in a linear equation with weak instruments. Two of these are based on conditional likelihood ratio (CLR) tests, and the others are based on inverting t statistics or the bootstrap P values associated with them. We propose a new method for constructing bootstrap confidence sets based on t statistics. In large samples, the procedures that generally work best are CLR confidence sets using asymptotic critical values and bootstrap confidence sets based on LIML estimates.

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Speaker: Sheng Xiao, University of Minnesota
Title: "Do Independent Directors Matter?"
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Date: 14 March 2012
Abstract: We analyze a newly available data set with the full employment history of independent directors at S&P 1500 companies and show that the proportion of independent directors with industry experience (IDIEs) is positively and significantly correlated with firm performance, but the proportion of independent directors without industry experience (IDNIEs) is not. We find that higher proportions of IDIEs are associated with fewer earnings restatements and more cash holdings. Firms with IDIEs have higher CEO pay-performance sensitivity, higher CEO turnover-performance sensitivity, and more patents with more citations. We also find that CEO power is negatively correlated with the presence of IDIEs.

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Speaker: Michael McKenzie, University of Sydney
Title: "Selectivity and Sample Bias in Dividend Drop-Off Studies"
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Date: 7 March 2012
Abstract: A large literature exists which estimates dividend values from the dividend drop off ratio around company ex-dates. This paper focuses on issues relating to sample selection and how this impacts on the drop off estimate. Specific issues considered are the impact of the market adjustment, thin trading, the size of the spread and tick relative to the dividend and dividend event day clustering. The results show that the drop off ratio is extremely sensitive to small changes in sample. Thus, rather than focus on deriving a point estimate of the drop off ratio, it may be more sensible to talk in terms of a feasible range.

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Speaker: Ron Masulis, University of NSW
Title: "Board Structure and Monitoring: New Evidence from CEO Turnover"
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Date: 29 February 2012
Abstract: This paper uses the mandatory changes in board composition brought about by the new exchange listing rules following the passage of the Sarbanes-Oxley Act (SOX) to estimate the effect of overall board independence and nominating committee independence on forced CEO turnover. We find that firms that are forced to adopt a majority independent board or a fully independent nominating committee experience statistically significant increases in sensitivity of forced CEO turnover to firm performance after SOX relative to firms that are already in compliance with the two rules before SOX respectively. For a CEO in a hypothetical average firm of our sample that makes either board structure change, the increase in implied probability of the CEO being fired when firm performance falls from the 75th percentile to the 25th percentile of the sample is about 2 to 14 times higher in the post-SOX period than in the pre-SOX period. Furthermore, we find no evidence that the quicker firing of CEOs in the post-SOX period indicates premature firing. Rather, we find that stock and operating performance improves following these CEO firings. Thus our evidence suggests that greater representation of independent directors on board and/or nominating committee leads to more effective monitoring.

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