| November 2012 | UnemploymentInsuranceandConsumerCredit Abstract
This paper examines the impact of unemployment insurance (UI) on credit markets. Exploiting heterogeneity in the generosity of unemployment insurance across US states and over time, we find that UI helps the unemployed avoid defaulting on their debt. For every $1,000 increase in maximum UI benefits, mortgage delinquency drops by 2% and the eviction rate drops by 10% among unemployed homeowners. We also find that lenders respond to this decline in default risk by expanding credit access for low-income households who are at risk of being laid off. For every $1,000 increase maximum UI benefits, low-income households are offered $900 (4%) more in credit card debt as well as lower interest rates on credit cards and mortgages (0.5% reduction)....
| Working Paper |
| August 2012 | CEOCompensationandCorporateRisk-TakingEvidencefromaNaturalExperiment Gormley, Todd, David A Matsa and Todd Milbourn. August 2012. CEO Compensation and Corporate Risk-Taking: Evidence from a Natural Experiment. Abstract
This paper examines the relationship between managerial compensation and corporate risk-taking in light of an unanticipated increase in firms business risksspecifically, an increase in liability and regulatory risk arising from workers exposure to newly identified carcinogens. This natural experiment provides an opportunity to examine two classic questions related to incentives and riskhow boards attempt to adjust incentives in response to firms risk and how these incentives affect a managers risk-taking incentives. We find that, after risk increases, boards reduce managers exposure to their firms risk, but managers total compensation portfolios remain relatively sticky for several years. We examine how managers ex-ante incentives...
| Working Paper |
| 2013 | HorizonPricing Kamara, Avraham, Robert Korajczyk, Xiaoxia Lou and Ronnie Sadka. 2013. Horizon Pricing. Abstract
An extensive literature documents heterogeneity in the delay of stock-price reaction to systematic shocks, implying that relevant asset risk depends on investment horizon. We study pricing of common risk factors across investment horizons. We find that liquidity risk is priced over short horizons and market risk is priced over intermediate horizons. Value/growth risk is priced over long horizons and as a non-risk-based characteristic at all horizons. Size and momentum are priced as characteristics rather than risk factors at all horizons. The results highlight the importance of investment horizon in determining risk premia.
| Working Paper |
| 2013 | ReviewofMarketLiquidityAssetPricingRiskandCrises Korajczyk, Robert. "Review of: Market Liquidity: Asset Pricing, Risk, and Crises." Quantitative Finance. | Other |
| 2012 | ABayesianModelofRiskandUncertainty | Working Paper |
| 2012 | AMacroeconomicFrameworkforQuantifyingSystemicRisk Abstract
Systemic risk arises when shocks lead to states where a disruption in financial intermediation adversely affects the economy and feeds back into further disrupting financial intermediation. We present a macroeconomic model with a financial intermediary sector subject to an equity capital constraint. The novel aspect of our analysis is that themodel produces a stochastic steady state distribution for the economy, in which only some of the states correspond to systemic risk states. The model allows us to examine the transition fromnormal states to systemic risk states. We calibrate our model and use it to match the systemic risk apparent during the 2007/2008 financial crisis.
| Working Paper |
| 2012 | ANoteonPreferenceUncertaintyandCommunicationinCommittee | Working Paper |
| 2012 | BoundedReasoningandHigher-OrderUncertainty | Working Paper |
| 2012 | CalendarCyclesInfrequentDecisionsandtheCrossSectionofStockReturns Jagannathan, Ravi, Srikant Marakani, Hitoshi Takehara and Yong Wang. 2012. Calendar Cycles, Infrequent Decisions and the Cross Section of Stock Returns. Management Science. 58(3): 507-522. Abstract
Stylized facts suggest that most investors pay more attention to their asset holdings at the end of the tax year. The tax year ends in December in Japan and April in U.K. August is a relatively quiet period. Therefore we should expect more support for the consumption based capital asset pricing model during the period surrounding the end of the tax year, i.e., fourth and first quarters in Japan; first and second quarters in U.K. We should find least support in the third quarter in both countries. Our findings are consistent with those expectations as well as the patterns in the U.S. documented in the literature. The need to take into account deterministic seasonal patterns in investor behavior provides another rationale for the use of long...
| Article |
| 2012 | CareerConcernsInactionandMarketInefficiencyEvidenceFromUtilityRegulation Borenstein, Severin, Meghan Busse and Ryan Kellogg. 2012. Career Concerns, Inaction and Market Inefficiency: Evidence From Utility Regulation . <;i>Journal of Industrial Economics. 60(2): 220-248. Abstract
Regulators and firms often use incentive schemes to attract skillful agents and to induce them to put forth effort in pursuit of the principals goals. Incentive schemes that reward skill and effort, however, may also punish agents for adverse outcomes beyond their control. As a result, such schemes may induce inefficient behavior, as agents try to avoid actions that might make it easier to directly associate a bad outcome with their decisions. In this paper, we study how such caution on the part of individual agents may lead to inefficient market outcomes, focusing on the context of natural gas procurement by regulated public utilities. We posit that a regulated natural gas distribution company may, due to regulatory incentives, engage in...
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