Research Summary Saltuk Ozerturk

Size: px
Start display at page:

Download "Research Summary Saltuk Ozerturk"

Transcription

1 Research Summary Saltuk Ozerturk A. Research on Information Acquisition in Markets and Agency Issues Between Investors and Financial Intermediaries An important dimension of the workings of financial markets is the agency relation between investors and such financial intermediaries as brokers, security analysts and portfolio managers. In this relationship, the security analysts and portfolio managers are informed agents who possess or are able to acquire superior information on financial assets; and the investors rely on the information they provide in making their portfolio decisions. In some cases such as mutual funds, the portfolio decision itself is delegated to the informed agent who selects a portfolio on behalf of the investors. Since the information on asset returns is soft in nature and privately observed, the relationship between investors and financial experts is subject to important agency problems. For example, the investor may not know if the expert indeed has acquired precise information when making a recommendation or undertaking a portfolio decision on investor s behalf. Even when it is certain that the expert has superior information, if the information is not ex post verifiable, the expert may have incentives to misreport it. Furthermore, the expert s incentives to acquire precise information and reveal it truthfully may depend on how much of this information will be revealed through the asset prices. These considerations call for an agency-theoretic analysis of the relationship between financial experts and investors. In the United States, the issue of whether the financial experts do indeed have the incentives to provide unbiased and precise information has been the subject of a recent policy debate. The credibility of security analysts who follow particular stocks and issue investment recommendations has been openly questioned by the popular business press. The extent of public discomfort was strong enough to lead the U.S. Congress to hold hearings in search of remedies for analyst credibility. According to practitioner accounts, one source of conflict of interest between analysts and their clients is the fact that analysts typically trade in the stocks of companies they cover. The implications of the financial expert s private trades on own account has been largely overlooked in the theoretical literature that studies agency problems between investors and financial experts. In the paper Stock Recommendation of an Analyst who Trades on Own Account 1, I examine how a stock analyst's ability to privately trade on own account affects his information acquisition and reporting incentives. The model considers an analyst who is hired by a principal (an investor) to provide information on a risky asset return. The analyst has to pay a cost to acquire a private information signal on the asset return: a high (low) signal indicates that the high (low) return is more likely. Given the private signal or based on no private information at 1 Forthcoming in the Rand Journal of Economics 1

2 all, the analyst issues a report, high or low, to the principal. Subsequent to the report, the analyst privately trades the risky asset along with a safe asset. The analyst has no a priori bias in choosing his report. Furthermore, the analyst s reporting and private portfolio choices take the risky asset price as given. This assumption rules out any incentives to misreport solely to manipulate the asset price and introduces analyst trading perhaps in the most innocuous way. In this setting, I analyze the principal's problem of providing costly information acquisition and truthful reporting incentives by tying the analyst's reward scheme to his report and to the realization of the risky asset return. The main results of the analysis are as follows. In this setting with a binary report and state space, any reward scheme that ties the analyst's compensation to his report and the realization of the risky asset return corresponds to a portfolio of safe and risky assets. By choosing a report, the analyst essentially chooses between portfolio endowments. Accordingly, for every signal the analyst issues the report that corresponds to the portfolio endowment with the maximum market value, given asset prices. This reporting choice is optimal because the analyst can sell the portfolio corresponding to his reward scheme as part of his trades, and use the proceeds as additional wealth to choose a privately optimal portfolio given the true signal. As a result, regardless of the true signal the analyst chooses the report that maximizes his wealth endowment: there is separation between the true signal and the analyst s reporting strategy. The principal can induce truthful reporting only by making the analyst indifferent between the two reports, but cannot make the analyst strictly prefer to report the true signal. The analyst's information acquisition incentives are driven only by private portfolio considerations: the analyst acquires information only if he will be holding a large enough position in the risky asset he covers. The paper also generalizes the above argument to a more general message and state space and presents a separation of the reporting strategy from private information result. The separation result applies to any reward scheme where for every report the part of the reward scheme that depends on the analyst s report corresponds to a portfolio endowment of safe and risky securities traded in the market. This result indicates that reward schemes with payoff structures similar to the financial claims that the analysts can trade in the market can be inadequate in ensuring credible recommendations. This applies to schemes which are designed purely to reward the analyst's performance. I provide an example using a performance based quadratic reward scheme which is known in the literature to ensure truthful reporting in the absence of analyst s trades. This scheme completely fails to induce any information revelation when the analyst privately trades on own account. A financial expert s incentives to provide precise information may also depend on how much of this information will be revealed through the asset prices. In an earlier paper titled as Direct Sale of Information When Precision is Unobservable (CJE 2, 2004) I focus on the information acquisition and sales strategy of a financial expert who sells investors information on a risky asset return. This paper considers a noisy rational expectations framework with a continuum of competitive investors where the equilibrium 2 Canadian Journal of Economics, 37, pp ,

3 asset price aggregates and partially reveals the information that traders have. An information signal with better precision is costly to produce and the seller s precision choice and the signal realization are not observable to potential buyers. Furthermore, since the equilibrium asset prices reveal some of the information to uninformed parties, the potential buyers willingness to pay for information depends on the informativeness of risky asset price, as in the seminal paper by Grossman and Stiglitz (1980). As in their model, the equilibrium risky asset price is not fully revealing due to some supply noise, which makes information acquisition from the seller desirable in equilibrium. In this agency setting, the seller of information cannot charge a fixed fee contingent on his unobservable precision. Furthermore, the seller also needs to ensure the buyers that his disclosure is truthful. I restrict attention to a quadratic payment schedule which is known to ensure truthfulness in the literature. I show that this contract also gives the seller the incentives to produce precise information by making his payment depend on the accuracy of his disclosure. In equilibrium, the buyers of information perfectly infer the precision they receive from the seller. The non-linearity in the information sale contract also distorts the portfolio decision of buyers and causes them to trade more aggressively than they would if they were paying a fixed fee for information. As a result, more information is revealed through the risky asset price decreasing the equilibrium value of information with a given precision. In this framework, I characterize the seller s optimal precision and sales volume choices and show that the seller sells to a larger fraction of the market and provides more precise information as the supply noise in the market increases. My third paper on the topic, titled as Equilibrium Incentives to Acquire Precise Information in Delegated Portfolio Management (JFSR, 2004) 3, considers an investor who delegates the portfolio decision to an expert, a setting commonly known in the literature as the delegated portfolio management problem. Prior to the portfolio decision, the financial expert expends unobservable and privately costly effort to acquire information on the risky asset return. The precision of information is increasing in the effort that the expert expends. Based on the information, the expert then selects a portfolio on behalf of the investor. A well-known result in this setting is that, unlike the standard agency models that examine managerial compensation contracts, linear compensation schemes are ineffective to provide incentives to the portfolio manager to exert effort and produce precise information. In particular, the existing literature has established irrelevance results, showing that increasing the portfolio manager's share from the final portfolio value has no effect on the equilibrium effort that the manager expends. The intuition for the irrelevance result is that the portfolio manager's response to the contract by choosing the risky asset position simply readjusts his exposure to the risky asset back to the level that is optimal according to the manager's own preferences. In this paper, I show that the irrelevance result relies on the portfolio manager facing a constant risky asset price regardless of his demand for the asset. In particular, in a noisy rational expectations setting where the risky asset price depends on the portfolio manager s demand, I show that increasing the portfolio manager's share from the final portfolio value do provide incentives for acquiring better information. 3 Journal of Financial Services Research, Volume 25, pages 25-36,

4 B. Research on Managerial Incentive Contracting and Corporate Governance The principal/agent model of incentive contracting has been widely used as a representation of various economic environments including borrower/lender, landowner/tenant and shareholder/manager relationships. Most applications of the principal-agent framework assume that the principal can restrict the agent s participation in contractual relationships with other parties. In other words, the contract is exclusive. While the exclusivity assumption provides a useful benchmark, in many interesting economic environments it is quite difficult, if not impossible, to perfectly monitor the agent s side trades. 4 As such, the agent s ability to engage in unobservable side contracts with third parties has important implications for incentive contracting. One setting where the agent can engage in side contracts with third parties is the agency problem between the shareholders of a firm and their manager. The managerial compensation contracts are perhaps the best-known examples of incentive contracts. In particular, stock-based compensation schemes are intended to provide the manager with the correct incentives to maximize shareholder value by tying compensation to firm performance. However, a risk averse manager with excessive exposure to his firm value is likely to have an incentive to diversify this exposure by trading with third parties. Indeed, as widely documented in the popular business press and the legal profession, a sizable market for managerial hedging emerged in the United States in the late 1990s. Investment banks and financial brokerage firms have developed and introduced sophisticated financial instruments enabling the managers to hedge the risks in their compensation contracts arising from stock-based compensation. The general view on managerial hedging practices, mostly shaped by the business press and the scholarship in the legal profession, is negative. It is argued that if the managers have unrestricted access to financial markets, they will be able to hedge away the performance incentives in their compensation schemes, rendering the incentive justification for managerial stock ownership invalid. My main research in managerial contracting analyzes the incentive implications of a manager s ability to trade with third parties. In two companion papers Financial Innovations and Managerial Incentive Contracting (CJE, 2006) 5 and Implications of Executive Hedge Markets for Firm Value Maximization (JEMS, 2007) 6, I analyze settings where the manager can trade to diversify the risk in his compensation scheme. In these papers, the shareholders optimally choose the sensitivity of their manager's pay to firm value to provide incentives, interpreted as costly effort. After the compensation contract is set, but before supplying effort, the risk-averse manager can trade with 4 The consumer credit markets in the U.S and the rural credit markets in less developed countries where private moneylenders and informal financial transactions interact and compete with banks and other formal institutions are some examples. 5 Canadian Journal of Economics, 39 (2), pages , Journal of Economics and Management Strategy, 16(2), pages , 2007 (joint with Bogachan Celen). 4

5 financial intermediaries. In the CJE (2006) paper, I allow the manager to engage in transactions that promise the return from his shares to third parties in exchange for a fixed payment, also known in practice as swap contracts or simulated sale of shares. In the JEMS (2007) paper, along with swap contracts the manager can also trade a financial security whose payoff is correlated with his firm-specific risk. This second type of side contract is referred to as a customized security: a higher correlation with the manager s firm-specific risk implies a higher degree of customization. The main results and insights from this research are as follows. A customized security enables the manager to diversify away the firm-specific risk without undoing the link between his wealth and firm performance. The manager's pay-performance sensitivity---and hence the manager's equilibrium effort---are increasing in the customization of the security available. The manager's trade in the swap market depends on whether swap contracts are exclusive or non-exclusive. If the swap contracts are exclusive, (i.e., if the manager can trade only one swap contract), then the availability of swaps is irrelevant for equilibrium effort incentives. The reason is that the intermediary that trades with the manager takes into account the manager's subsequent effort level. The more shares the manager swaps, the less effort incentives he retains, hence lowering the payment from the swap. Since the intermediary shares the manager's risk in exactly the same way as the shareholders, the shareholders sell the firm to the manager and let him internalize the risk-incentive trade-off. With an exclusive swap, the manager does not trade away all his shares. The equilibrium effort remains the same as would obtain in the absence of exclusive swap contracts. When the swap contracts are non-exclusive (i.e., the manager cannot be prevented from trading swaps with other intermediaries), depending on parameter values the equilibrium involves either full unraveling, with the manager swapping all of his shares and expending no effort, or no swap trade. Full unraveling occurs when the firm-specific risk is above a certain threshold. When both a customized hedge security and non-exclusive swap contracts are available, the analysis shows that if the customization is above a certain threshold, the manager only trades the customized security and does not trade any non-exclusive swap contracts. With sufficiently high customization, the manager is able to diversify a large fraction of his firm-specific risk. Since his compensation contract now exposes him to less risk, unwinding exposure by non-exclusive swap contracts becomes a less attractive hedging alternative. If the security customization is lower than this threshold, however, the manager completely swaps all share ownership, does not trade the customized security, and expends no effort. This research identifies two important characteristics of managerial hedge markets that are relevant for their incentive implications: (1) the legal structure/contract enforceability that determines the degree to which the swap contracts can be made exclusive, and (2) the level of security customization that hedge markets can provide. The results indicate that the concern that the hedge markets will lead the managers to undo their performance incentives is valid precisely 5

6 when the financial intermediaries can offer only low security customization, and exclusivity in swap contracts is not enforceable. With high security customization, hedge markets can actually be beneficial for incentive contracting. Furthermore, the emergence of hedge markets may increase the manager's pay-performance sensitivity, i.e., the extent of stock based compensation. The casual comparison of executive pay in the U.S. versus Europe seems to lend some support for this implication. The U.S. firms grant compensation packages with considerably higher pay-performance sensitivities than their European counterparts. The analysis suggests that some of the cross-country differences in pay-performance sensitivities can be attributed to differences in the customization and enforceability of hedge contracts available to executives. In an earlier paper titled Managerial Risk Reduction, Incentives and Firm Value (ET, 2006) 7, I allow the manager to diversify away the systematic risk (but not the firm-specific risk) in his compensation contract by trading the market portfolio or a general market index. The manager s ability to trade away the systematic risk is by construction beneficial for incentive contracting. My focus in this paper is to endogenize the manager s cost of diversifying the systematic risk in a widely used market microstructure framework a la Kyle (1985). In particular, I introduce the manager as a rational but uninformed hedge trader in the market where systematic risk is traded. This market microstructure framework helps to relate the manager's equilibrium compensation scheme to the liquidity of the market for the systematic risk security. I show that due to imperfect liquidity, the manager does not diversify away all the systematic risk in her compensation. The amount of diversification is increasing in the liquidity of systematic risk security. The more systematic risk the manager can trade away ex post, the more incentives he can be given ex ante. Accordingly, the manager s optimal pay-performance sensitivity is increasing in the liquidity of the systematic risk security. By combining elements of market microstructure theory and theory of managerial contracting, this paper builds a diversification link between market liquidity, managerial incentives and the firm value. The equilibrium incentives and hence the firm value are increasing in the liquidity of the market portfolio. Apart from the above research I have a short paper on corporate boards and managerial compensation. In practice, there is no a priori reason why corporate boards representing shareholders would completely seek to maximize shareholder value. In the paper titled Board Independence and CEO Pay published in Economics Letters, 8 I analyze a model where a board of directors which benefits from the manager's perks sets the manager s compensation contract. In the model, the board gathers information on the manager s unknown ability and uses this information to design the manager s incentive compensation. The manager then allocates the company resources between projects that maximize shareholder value and those projects that only create benefits (perks) for him and possibly for the board. I refer to the extent that the board derives utility from perks created by the manager as the degree of the board's dependence. I show that the board's 7 Economic Theory, Volume 27(3), pages , Economics Letters, Volume 88, pages ,

7 monitoring intensity and the pay-performance sensitivity of the manager's compensation contract are increasing in board's independence. C. Research on Contracting Between Entrepreneurs and Financiers A third line of work in my research considers agency problems between entrepreneurs and specialized financiers that provide funds to entrepreneurial ventures. Cash constrained entrepreneurs typically seek financing from specialized financiers (like venture capitalists) who also have the expertise to monitor the progress of their ventures. By tying the availability of future financing to the venture s progress, the information generated by these financiers serves as a discipline device for the entrepreneur. Despite this potential benefit, the close involvement of an initial financier can also be costly from the entrepreneur s point of view. The information that the specialized financier acquires may give him bargaining power over the future financing rounds. In a paper titled Bargaining and Exclusivity in a Borrower-Lender Relationship 9 (joint with Levent Kockesen), we develop a model where due to the superior information of the initial financier, an entrepreneur may end up in an exclusive relationship with this financier and lose rents, despite the availability of competitive outside financiers who can also provide funds. Our model considers an entrepreneur who seeks financing to undertake a project with an uncertain return. The investment in the project is spread over two periods. Following an initial investment which is optimally chosen by the entrepreneur, the financier who provides this first round financing and the entrepreneur observe an information signal on the project's profitability. The two parties then bargain over the continuation terms to complete the project. The initial contract between the entrepreneur and the initial financier does not impose any exclusivity clause. The initial financier may agree to provide the continuation funds or may deny further financing. The entrepreneur can also opt out from the bargaining table and seek all the continuation financing from competitive outside lenders. Since the outsiders do not observe the information signal, however, the terms they offer and hence the value of the entrepreneur's outside option is determined endogenously by their beliefs on the signal realization. The explicit analysis of the bargaining game illustrates that the entrepreneur's bargaining with a symmetrically informed insider financier and competitive but uninformed outside financiers generates an exclusive financing equilibrium. In all cases where there is further investment, the initial financier is the party that provides financing and extracts part of the continuation surplus. The information revealed to parties during the relationship creates an exit barrier and the relationship becomes exclusive. We also analyze how the anticipation of an exclusive relationship with the initial financier affects the amount of initial investment optimally chosen by the entrepreneur. Due to its effect on the subsequent bargaining game for continuation financing, the initial investment level becomes a strategic choice for the entrepreneur: she makes the initial lender invest as 9 Forthcoming in Review of Economic Design (joint with Levent Kockesen) 7

8 much as possible subject to a participation constraint. Consequently, there is overinvestment in the project before information revelation. In a solo authored paper titled as Risk Sharing, Risk Shifting and the Role of Convertible Debt 10, I consider a financial contracting problem between a risk neutral entrepreneur and a risk-averse financier. Once the venture is started, the entrepreneur chooses an action that determines the riskiness of the venture's payoff. In particular, the entrepreneur chooses between high and low risk actions: the high risk action yields a payoff distribution which is a mean preserving spread of the one generated by the low risk action. I show that when the action choice is contractible, the optimal risk sharing consideration under limited liability calls for a pure debt contract and the low risk action is adopted. When the action choice is not contractible, due to the well known risk shifting problem implementing the low risk action requires a deviation from the optimal risk sharing provided by the debt contract. I focus on situations where despite this deviation, the risk averse financier prefers to implement the low risk action and show that a convertible debt contract outperforms pure debt, pure equity and any mixture of debt and equity. This result follows because a convertible debt contract combines two desirable properties in this contracting problem. Its debt component assigns the whole payoff to the risk averse financier at the low end of payoff realizations and provides better insurance against the downside risk. The conversion into equity option, on the other hand, provides a convex payoff schedule for the financier at the upper end of payoff realizations, and corrects the entrepreneur's high risk incentives arising from the debt portion of the contract. This role can not be achieved by simple mixtures of debt and equity, since mixed debt-equity contracts also yield a concave payoff for the financier (and hence a convex one for the entrepreneur) and implement the high risk action. 10 Revised and resubmitted to Journal of Mathematical Economics 8

Financial Markets. Itay Goldstein. Wharton School, University of Pennsylvania

Financial Markets. Itay Goldstein. Wharton School, University of Pennsylvania Financial Markets Itay Goldstein Wharton School, University of Pennsylvania 1 Trading and Price Formation This line of the literature analyzes the formation of prices in financial markets in a setting

More information

CHAPTER 1: INTRODUCTION, BACKGROUND, AND MOTIVATION. Over the last decades, risk analysis and corporate risk management activities have

CHAPTER 1: INTRODUCTION, BACKGROUND, AND MOTIVATION. Over the last decades, risk analysis and corporate risk management activities have Chapter 1 INTRODUCTION, BACKGROUND, AND MOTIVATION 1.1 INTRODUCTION Over the last decades, risk analysis and corporate risk management activities have become very important elements for both financial

More information

Moral Hazard. Itay Goldstein. Wharton School, University of Pennsylvania

Moral Hazard. Itay Goldstein. Wharton School, University of Pennsylvania Moral Hazard Itay Goldstein Wharton School, University of Pennsylvania 1 Principal-Agent Problem Basic problem in corporate finance: separation of ownership and control: o The owners of the firm are typically

More information

Stock recommendation of an analyst who trades on own account

Stock recommendation of an analyst who trades on own account RAND Journal of Economics Vol. 38, No. 3, 2007 pp. 768 785 Stock recommendation of an analyst who trades on own account Saltuk Ozerturk This article analyzes the provision of information acquisition and

More information

The Role of Alternative Investments in a Diversified Investment Portfolio

The Role of Alternative Investments in a Diversified Investment Portfolio The Role of Alternative Investments in a Diversified Investment Portfolio By Baird Private Wealth Management Introduction Traditional Investments Domestic Equity International Equity Taxable Fixed Income

More information

Five Myths of Active Portfolio Management. P roponents of efficient markets argue that it is impossible

Five Myths of Active Portfolio Management. P roponents of efficient markets argue that it is impossible Five Myths of Active Portfolio Management Most active managers are skilled. Jonathan B. Berk 1 This research was supported by a grant from the National Science Foundation. 1 Jonathan B. Berk Haas School

More information

Unraveling versus Unraveling: A Memo on Competitive Equilibriums and Trade in Insurance Markets

Unraveling versus Unraveling: A Memo on Competitive Equilibriums and Trade in Insurance Markets Unraveling versus Unraveling: A Memo on Competitive Equilibriums and Trade in Insurance Markets Nathaniel Hendren January, 2014 Abstract Both Akerlof (1970) and Rothschild and Stiglitz (1976) show that

More information

2. Information Economics

2. Information Economics 2. Information Economics In General Equilibrium Theory all agents had full information regarding any variable of interest (prices, commodities, state of nature, cost function, preferences, etc.) In many

More information

On the Efficiency of Competitive Stock Markets Where Traders Have Diverse Information

On the Efficiency of Competitive Stock Markets Where Traders Have Diverse Information Finance 400 A. Penati - G. Pennacchi Notes on On the Efficiency of Competitive Stock Markets Where Traders Have Diverse Information by Sanford Grossman This model shows how the heterogeneous information

More information

Designator author. Selection and Execution Policy

Designator author. Selection and Execution Policy Designator author Selection and Execution Policy Contents 1. Context 2 2. Best selection and best execution policy 3 2.1. Selection and evaluation of financial intermediaries 3 2.1.1. Agreement by the

More information

Investing on hope? Small Cap and Growth Investing!

Investing on hope? Small Cap and Growth Investing! Investing on hope? Small Cap and Growth Investing! Aswath Damodaran Aswath Damodaran! 1! Who is a growth investor?! The Conventional definition: An investor who buys high price earnings ratio stocks or

More information

Rethinking Fixed Income

Rethinking Fixed Income Rethinking Fixed Income Challenging Conventional Wisdom May 2013 Risk. Reinsurance. Human Resources. Rethinking Fixed Income: Challenging Conventional Wisdom With US Treasury interest rates at, or near,

More information

Lecture 2: The nature of financial intermediation:

Lecture 2: The nature of financial intermediation: Lecture 2: The nature of financial intermediation: The issue of why financial intermediaries exist is a puzzle for the complete markets paradigm of Arrow and Debreu. As we describe in this lecture, the

More information

Investment Philosophy

Investment Philosophy Investment Philosophy Our unique approach to investment management puts you at the heart of everything we do Wealth and Investment Management Discover a new side to your personality: your investment self

More information

Understanding a Firm s Different Financing Options. A Closer Look at Equity vs. Debt

Understanding a Firm s Different Financing Options. A Closer Look at Equity vs. Debt Understanding a Firm s Different Financing Options A Closer Look at Equity vs. Debt Financing Options: A Closer Look at Equity vs. Debt Business owners who seek financing face a fundamental choice: should

More information

Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions

Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions Chapter 1 Introduction to Financial Management Concept Check 1.1 1. What is financial management?

More information

The Controversy over the Discount for Lack of Marketability

The Controversy over the Discount for Lack of Marketability The Controversy over the Discount for Lack of Marketability By Rand M. Curtiss, FIBA, MCBA, ASA, ASA It is easy to sell your shares of Microsoft stock. You call your broker or access the Internet, the

More information

The Master of Science in Finance (English Program) - MSF. Department of Banking and Finance. Chulalongkorn Business School. Chulalongkorn University

The Master of Science in Finance (English Program) - MSF. Department of Banking and Finance. Chulalongkorn Business School. Chulalongkorn University The Master of Science in Finance (English Program) - MSF Department of Banking and Finance Chulalongkorn Business School Chulalongkorn University Overview of Program Structure Full Time Program: 1 Year

More information

Incentive Compensation for Risk Managers when Effort is Unobservable

Incentive Compensation for Risk Managers when Effort is Unobservable Incentive Compensation for Risk Managers when Effort is Unobservable by Paul Kupiec 1 This Draft: October 2013 Abstract In a stylized model of a financial intermediary, risk managers can expend effort

More information

Screening by the Company You Keep: Joint Liability Lending and the Peer Selection Maitreesh Ghatak presented by Chi Wan

Screening by the Company You Keep: Joint Liability Lending and the Peer Selection Maitreesh Ghatak presented by Chi Wan Screening by the Company You Keep: Joint Liability Lending and the Peer Selection Maitreesh Ghatak presented by Chi Wan 1. Introduction The paper looks at an economic environment where borrowers have some

More information

EFRAG Short Discussion Series THE USE OF INFORMATION BY CAPITAL PROVIDERS IMPLICATIONS FOR STANDARD SETTING

EFRAG Short Discussion Series THE USE OF INFORMATION BY CAPITAL PROVIDERS IMPLICATIONS FOR STANDARD SETTING EFRAG Short Discussion Series THE USE OF INFORMATION BY CAPITAL PROVIDERS IMPLICATIONS FOR STANDARD SETTING JAN 2014 This document has been published by EFRAG to assist constituents in developing their

More information

Proponents of efficient markets argue that it is

Proponents of efficient markets argue that it is Five Myths of Active Portfolio Management Most active managers are skilled. Jonathan B. Berk Proponents of efficient markets argue that it is impossible to beat the market consistently. In support of their

More information

Finance 400 A. Penati - G. Pennacchi Market Micro-Structure: Notes on the Kyle Model

Finance 400 A. Penati - G. Pennacchi Market Micro-Structure: Notes on the Kyle Model Finance 400 A. Penati - G. Pennacchi Market Micro-Structure: Notes on the Kyle Model These notes consider the single-period model in Kyle (1985) Continuous Auctions and Insider Trading, Econometrica 15,

More information

Portfolio Presentation: Growth & Income and U.S. Diversified Equity

Portfolio Presentation: Growth & Income and U.S. Diversified Equity Portfolio Presentation: Growth & Income and U.S. Diversified Equity The above portfolios are available through the Morgan Stanley Portfolio Management program, managed by Portfolio Manager Bernard Semon

More information

Theory of the Firm. Itay Goldstein. Wharton School, University of Pennsylvania

Theory of the Firm. Itay Goldstein. Wharton School, University of Pennsylvania Theory of the Firm Itay Goldstein Wharton School, University of Pennsylvania 1 Boundaries of the Firm Firms are economic units that make decisions, produce, sell, etc. What determines the optimal size

More information

A Simple Utility Approach to Private Equity Sales

A Simple Utility Approach to Private Equity Sales The Journal of Entrepreneurial Finance Volume 8 Issue 1 Spring 2003 Article 7 12-2003 A Simple Utility Approach to Private Equity Sales Robert Dubil San Jose State University Follow this and additional

More information

Figure 1.1: The capital market. From your previous accounting studies, identify the main functions of a capital market.

Figure 1.1: The capital market. From your previous accounting studies, identify the main functions of a capital market. Financial managers do not operate in a vacuum; they depend on long-term funds from the capital market, which acts as an intermediary for the allocation of investors capital through debt and equity (see

More information

Understanding Managed Funds

Understanding Managed Funds ... Understanding Managed Funds Contact us If you would like to know more about how AMP Capital can help you, please visit ampcapital.com.au, or contact one of the following: Financial Planners Personal

More information

Volatility: A Brief Overview

Volatility: A Brief Overview The Benefits of Systematically Selling Volatility July 2014 By Jeremy Berman Justin Frankel Co-Portfolio Managers of the RiverPark Structural Alpha Fund Abstract: A strategy of systematically selling volatility

More information

STATEMENT OF INVESTMENT BELIEFS AND PRINCIPLES

STATEMENT OF INVESTMENT BELIEFS AND PRINCIPLES STATEMENT OF INVESTMENT BELIEFS AND PRINCIPLES Investment Advisory Board, Petroleum Fund of Timor-Leste August 2014 CONTENTS Page Summary... 1 Context... 3 Mission Statement... 4 Investment Objectives...

More information

About Hedge Funds. What is a Hedge Fund?

About Hedge Funds. What is a Hedge Fund? About Hedge Funds What is a Hedge Fund? A hedge fund is a fund that can take both long and short positions, use arbitrage, buy and sell undervalued securities, trade options or bonds, and invest in almost

More information

Commitment to Overinvest and Price Informativeness

Commitment to Overinvest and Price Informativeness Commitment to Overinvest and Price Informativeness James Dow Itay Goldstein Alexander Guembel London Business University of University of Oxford School Pennsylvania FMG financial stability conference,

More information

How to Sell a (Bankrupt) Company

How to Sell a (Bankrupt) Company How to Sell a (Bankrupt) Company Francesca Cornelli (London Business School and CEPR) Leonardo Felli (London School of Economics) March 2000 Abstract. The restructuring of a bankrupt company often entails

More information

About Our Private Investment Benchmarks

About Our Private Investment Benchmarks 1. What is a benchmark? FREQUENTLY ASKED QUESTIONS A benchmark is a standard of measurement for investment performance. One of the more common types of benchmarks is an index which, in this case, measures

More information

On Moral Hazard and Macroeconomics

On Moral Hazard and Macroeconomics On Moral Hazard and Macroeconomics Roger B. Myerson Brigham Young University March 2012 "A model of moral-hazard credit cycles" Journal of Political Economy 120(5):847-878 (2012). "On Keynes and the theory

More information

Intro on Hedge Funds AQF-2005

Intro on Hedge Funds AQF-2005 Intro on Hedge Funds AQF-2005 1 Hedge Funds What are hedge funds? Why is their performance measurement different from that of regular mutual funds? How should we analyze their performance? 2 What is a

More information

IS MORE INFORMATION BETTER? THE EFFECT OF TRADERS IRRATIONAL BEHAVIOR ON AN ARTIFICIAL STOCK MARKET

IS MORE INFORMATION BETTER? THE EFFECT OF TRADERS IRRATIONAL BEHAVIOR ON AN ARTIFICIAL STOCK MARKET IS MORE INFORMATION BETTER? THE EFFECT OF TRADERS IRRATIONAL BEHAVIOR ON AN ARTIFICIAL STOCK MARKET Wei T. Yue Alok R. Chaturvedi Shailendra Mehta Krannert Graduate School of Management Purdue University

More information

Commodities. Precious metals as an asset class. April 2011. What qualifies as an asset class? What makes commodities an asset class?

Commodities. Precious metals as an asset class. April 2011. What qualifies as an asset class? What makes commodities an asset class? Commodities Precious metals as an asset class April 2011 What qualifies as an asset class? Broadly speaking, an asset class is simply a grouping of assets that possess similar characteristics. Defining

More information

How credit analysts view and use the financial statements

How credit analysts view and use the financial statements How credit analysts view and use the financial statements Introduction Traditionally it is viewed that equity investment is high risk and bond investment low risk. Bondholders look at companies for creditworthiness,

More information

Financial Market Microstructure Theory

Financial Market Microstructure Theory The Microstructure of Financial Markets, de Jong and Rindi (2009) Financial Market Microstructure Theory Based on de Jong and Rindi, Chapters 2 5 Frank de Jong Tilburg University 1 Determinants of the

More information

Financial Management

Financial Management Financial Management Lecture 1 Introduction Jianbing Huang 2013-2-25 1-0 Road Map Part A: Introduction of Financial Management Objective of manager and role of financial markets Given cash flows and discount

More information

Algorithmic Trading Session 1 Introduction. Oliver Steinki, CFA, FRM

Algorithmic Trading Session 1 Introduction. Oliver Steinki, CFA, FRM Algorithmic Trading Session 1 Introduction Oliver Steinki, CFA, FRM Outline An Introduction to Algorithmic Trading Definition, Research Areas, Relevance and Applications General Trading Overview Goals

More information

Chapter 7. Sealed-bid Auctions

Chapter 7. Sealed-bid Auctions Chapter 7 Sealed-bid Auctions An auction is a procedure used for selling and buying items by offering them up for bid. Auctions are often used to sell objects that have a variable price (for example oil)

More information

Beyond Venture Capital: An Innovative Approach for Investment in New Ventures and Projects

Beyond Venture Capital: An Innovative Approach for Investment in New Ventures and Projects Research Review CAIA Member Contribution What a CAIA Member Should Know : An Innovative Approach for Investment in New Ventures and Projects Manuel Stagars, CAIA Entrepreneur and Economist 44 CAIA Member

More information

Applied Economics For Managers Recitation 5 Tuesday July 6th 2004

Applied Economics For Managers Recitation 5 Tuesday July 6th 2004 Applied Economics For Managers Recitation 5 Tuesday July 6th 2004 Outline 1 Uncertainty and asset prices 2 Informational efficiency - rational expectations, random walks 3 Asymmetric information - lemons,

More information

A Two-step Representation of Accounting Measurement

A Two-step Representation of Accounting Measurement A Two-step Representation of Accounting Measurement 1 An incorrect belief Pingyang Gao The University of Chicago Booth School of Business November 27, 2012 How does accounting provide information? Empirically,

More information

21. Unverifiable Investment, Hold Up, Options and Ownership

21. Unverifiable Investment, Hold Up, Options and Ownership 21. Unverifiable Investment, Hold Up, Options and Ownership This chapter applies the tools of games with joint decisions and negotiation equilibrium to study the hold up problem in economics. We first

More information

Series of Shares B, B-6, E, F, F-6, O B, E, F, O O A, B

Series of Shares B, B-6, E, F, F-6, O B, E, F, O O A, B No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. The Funds and their securities offered under this Annual Information Form are

More information

APRA REVIEW OF UNIT PRICING PRACTICES

APRA REVIEW OF UNIT PRICING PRACTICES APRA REVIEW OF UNIT PRICING PRACTICES Unitisation is the process by which a pool of assets are broken into portions of ownership (units), which are conceptually similar to shares in a company. The process

More information

Discussion of Which Approach to Accounting for Employee Stock Options Best Reflects Market Pricing?

Discussion of Which Approach to Accounting for Employee Stock Options Best Reflects Market Pricing? Discussion of Which Approach to Accounting for Employee Stock Options Best Reflects Market Pricing? David Aboody daboody@anderson.ucla.edu UCLA Anderson School of Management, 110 Westwood Plaza, Los Angeles,

More information

Fundamentals Level Skills Module, Paper F9

Fundamentals Level Skills Module, Paper F9 Answers Fundamentals Level Skills Module, Paper F9 Financial Management December 2008 Answers 1 (a) Rights issue price = 2 5 x 0 8 = $2 00 per share Theoretical ex rights price = ((2 50 x 4) + (1 x 2 00)/5=$2

More information

VANDERBILT AVENUE ASSET MANAGEMENT

VANDERBILT AVENUE ASSET MANAGEMENT SUMMARY CURRENCY-HEDGED INTERNATIONAL FIXED INCOME INVESTMENT In recent years, the management of risk in internationally diversified bond portfolios held by U.S. investors has been guided by the following

More information

TOPIC 4: ASYMMETRIC INFORMATION MODELS OF CAPITAL STRUCTURE

TOPIC 4: ASYMMETRIC INFORMATION MODELS OF CAPITAL STRUCTURE TOPIC 4: ASYMMETRIC INFORMATION MODELS OF CAPITAL STRUCTURE 1. Introduction The recent economic literature has emphasized a lot the importance of asymmetric information to our understanding of a wide range

More information

INVESTMENT POLICY STATEMENT Valued Client

INVESTMENT POLICY STATEMENT Valued Client INVESTMENT POLICY STATEMENT Valued Client August 17, 2010 PREPARED BY: John Ohl Bay Colony Advisors 91 Main St STE 308 Concord, Massachusetts 01742 (978) 369-7200 John@baycolonyadvisors.com www.baycolonyadvisors.com

More information

Accounting Conservatism and Debt Contracts: Efficient Liquidation and Covenant Renegotiation

Accounting Conservatism and Debt Contracts: Efficient Liquidation and Covenant Renegotiation Accounting Conservatism and Debt Contracts: Efficient Liquidation and Covenant Renegotiation Jing Li Tepper School of Business Abstract This paper develops a theoretical model to understand the role of

More information

McKinley Capital U.S. Equity Income Prospects for Performance in a Changing Interest Rate Environment

McKinley Capital U.S. Equity Income Prospects for Performance in a Changing Interest Rate Environment March 25, 2014 McKinley Capital U.S. Equity Income Prospects for Performance in a Changing Interest Rate Environment This paper analyzes the historic performance of the McKinley Capital Management, LLC

More information

Finance. Undergraduate Program of Study. Graduate Program of Study. Courses. Certificate in Risk Management and Insurance. Doctor of Philosophy

Finance. Undergraduate Program of Study. Graduate Program of Study. Courses. Certificate in Risk Management and Insurance. Doctor of Philosophy University of Iowa 2015-16 General Catalog 1 Finance Chair Erik Lie Undergraduate major: finance (B.B.A.) Graduate degree: finance subprogram for the Ph.D. in business administration Faculty: http://tippie.uiowa.edu/finance/faculty.cfm

More information

Executive compensation in companies with

Executive compensation in companies with POWER, RENT EXTRACTION, AND EXECUTIVE COMPENSATION LUCIAN BEBCHUK* AND JESSE FRIED** Executive compensation in companies with substantial separation of ownership and control has long attracted a great

More information

Fundamentals Level Skills Module, Paper F9

Fundamentals Level Skills Module, Paper F9 Answers Fundamentals Level Skills Module, Paper F9 Financial Management June 2008 Answers 1 (a) Calculation of weighted average cost of capital (WACC) Cost of equity Cost of equity using capital asset

More information

Black Scholes Merton Approach To Modelling Financial Derivatives Prices Tomas Sinkariovas 0802869. Words: 3441

Black Scholes Merton Approach To Modelling Financial Derivatives Prices Tomas Sinkariovas 0802869. Words: 3441 Black Scholes Merton Approach To Modelling Financial Derivatives Prices Tomas Sinkariovas 0802869 Words: 3441 1 1. Introduction In this paper I present Black, Scholes (1973) and Merton (1973) (BSM) general

More information

April 2006. Comment Letter. Discussion Paper: Measurement Bases for Financial Accounting Measurement on Initial Recognition

April 2006. Comment Letter. Discussion Paper: Measurement Bases for Financial Accounting Measurement on Initial Recognition April 2006 Comment Letter Discussion Paper: Measurement Bases for Financial Accounting Measurement on Initial Recognition The Austrian Financial Reporting and Auditing Committee (AFRAC) is the privately

More information

L2: Alternative Asset Management and Performance Evaluation

L2: Alternative Asset Management and Performance Evaluation L2: Alternative Asset Management and Performance Evaluation Overview of asset management from ch 6 (ST) Performance Evaluation of Investment Portfolios from ch24 (BKM) 1 Asset Management Asset Management

More information

IFRS industry insights

IFRS industry insights IFRS Global Office Issue 1, April 2012 IFRS industry insights IASB issues a revised exposure draft on revenue recognition insights for the financial services industry The revised ED is the next step in

More information

Market Access ** Helmut Laux/Robert M. Gillenkirch/Matthias M. Schabel*

Market Access ** Helmut Laux/Robert M. Gillenkirch/Matthias M. Schabel* Incentive Bidding Compensation Strategies Helmut Laux/Robert M. Gillenkirch/Matthias M. Schabel* Incentive Compensation, Valuation, and Capital Market Access ** Abstract In this paper we consider linear

More information

Chapter 14. Understanding Financial Contracts. Learning Objectives. Introduction

Chapter 14. Understanding Financial Contracts. Learning Objectives. Introduction Chapter 14 Understanding Financial Contracts Learning Objectives Differentiate among the different mechanisms of external financing of firms Explain why mechanisms of external financing depend upon firm

More information

BUSM 411: Derivatives and Fixed Income

BUSM 411: Derivatives and Fixed Income BUSM 411: Derivatives and Fixed Income 2. Forwards, Options, and Hedging This lecture covers the basic derivatives contracts: forwards (and futures), and call and put options. These basic contracts are

More information

Labor Economics, 14.661. Lecture 3: Education, Selection, and Signaling

Labor Economics, 14.661. Lecture 3: Education, Selection, and Signaling Labor Economics, 14.661. Lecture 3: Education, Selection, and Signaling Daron Acemoglu MIT November 3, 2011. Daron Acemoglu (MIT) Education, Selection, and Signaling November 3, 2011. 1 / 31 Introduction

More information

Capital Structure. Itay Goldstein. Wharton School, University of Pennsylvania

Capital Structure. Itay Goldstein. Wharton School, University of Pennsylvania Capital Structure Itay Goldstein Wharton School, University of Pennsylvania 1 Debt and Equity There are two main types of financing: debt and equity. Consider a two-period world with dates 0 and 1. At

More information

POLICY STATEMENT TO REGULATION 55-103 RESPECTING INSIDER REPORTING FOR CERTAIN DERIVATIVE TRANSACTIONS (EQUITY MONETIZATION)

POLICY STATEMENT TO REGULATION 55-103 RESPECTING INSIDER REPORTING FOR CERTAIN DERIVATIVE TRANSACTIONS (EQUITY MONETIZATION) POLICY STATEMENT TO REGULATION 55-103 RESPECTING INSIDER REPORTING FOR CERTAIN DERIVATIVE TRANSACTIONS (EQUITY MONETIZATION) The members of the Canadian Securities Administrators (the CSA) that have adopted

More information

Market Linked Certificates of Deposit

Market Linked Certificates of Deposit Market Linked Certificates of Deposit This material was prepared by Wells Fargo Securities, LLC, a registered brokerdealer and separate non-bank affiliate of Wells Fargo & Company. This material is not

More information

TPPE17 Corporate Finance 1(5) SOLUTIONS RE-EXAMS 2014 II + III

TPPE17 Corporate Finance 1(5) SOLUTIONS RE-EXAMS 2014 II + III TPPE17 Corporate Finance 1(5) SOLUTIONS RE-EXAMS 2014 II III Instructions 1. Only one problem should be treated on each sheet of paper and only one side of the sheet should be used. 2. The solutions folder

More information

Answers to Concepts in Review

Answers to Concepts in Review Answers to Concepts in Review 1. A portfolio is simply a collection of investments assembled to meet a common investment goal. An efficient portfolio is a portfolio offering the highest expected return

More information

The Future Regulation of Venture Capital in the EU

The Future Regulation of Venture Capital in the EU The Future Regulation of Venture Capital in the EU Introduction The Irish Venture Capital Association (IVCA) is the representative organisation for all venture capital firms in Ireland. Venture capital

More information

for Analysing Listed Private Equity Companies

for Analysing Listed Private Equity Companies 8 Steps for Analysing Listed Private Equity Companies Important Notice This document is for information only and does not constitute a recommendation or solicitation to subscribe or purchase any products.

More information

Defining Issues June 2013, No. 13-28

Defining Issues June 2013, No. 13-28 Defining Issues June 2013, No. 13-28 AICPA Issues Practice Aid for Valuation of Privately-Held-Company Equity Securities Issued as Compensation The AICPA recently issued a Practice Aid addressing the valuation

More information

Net revenue 785 25 1,721 05 5,038 54 3,340 65 Tax payable (235 58) (516 32) (1,511 56) (1,002 20)

Net revenue 785 25 1,721 05 5,038 54 3,340 65 Tax payable (235 58) (516 32) (1,511 56) (1,002 20) Answers Fundamentals Level Skills Module, Paper F9 Financial Management December 2013 Answers 1 (a) Calculating the net present value of the investment project using a nominal terms approach requires the

More information

Five Things To Know About Shares

Five Things To Know About Shares Introduction Trading in shares has become an integral part of people s lives. However, the complex world of shares, bonds and mutual funds can be intimidating for many who still do not know what they are,

More information

FINANCIAL ECONOMICS OPTION PRICING

FINANCIAL ECONOMICS OPTION PRICING OPTION PRICING Options are contingency contracts that specify payoffs if stock prices reach specified levels. A call option is the right to buy a stock at a specified price, X, called the strike price.

More information

Overlapping ETF: Pair trading between two gold stocks

Overlapping ETF: Pair trading between two gold stocks MPRA Munich Personal RePEc Archive Overlapping ETF: Pair trading between two gold stocks Peter N Bell and Brian Lui and Alex Brekke University of Victoria 1. April 2012 Online at http://mpra.ub.uni-muenchen.de/39534/

More information

Should Banks Trade Equity Derivatives to Manage Credit Risk? Kevin Davis 9/4/1991

Should Banks Trade Equity Derivatives to Manage Credit Risk? Kevin Davis 9/4/1991 Should Banks Trade Equity Derivatives to Manage Credit Risk? Kevin Davis 9/4/1991 Banks incur a variety of risks and utilise different techniques to manage the exposures so created. Some of those techniques

More information

Advanced Strategies for Managing Volatility

Advanced Strategies for Managing Volatility Advanced Strategies for Managing Volatility Description: Investment portfolios are generally exposed to volatility through company-specific risk and through market risk. Long-term investors can reduce

More information

What can property offer an institutional investor?

What can property offer an institutional investor? What can property offer an institutional investor? UK property investment briefing (Paper 1) 27 January 2014 Contents 1. A relatively high and stable income return.... 3 2. Volatility... 4 3. Diversification

More information

Lecture 2: Delineating efficient portfolios, the shape of the meanvariance frontier, techniques for calculating the efficient frontier

Lecture 2: Delineating efficient portfolios, the shape of the meanvariance frontier, techniques for calculating the efficient frontier Lecture 2: Delineating efficient portfolios, the shape of the meanvariance frontier, techniques for calculating the efficient frontier Prof. Massimo Guidolin Portfolio Management Spring 2016 Overview The

More information

MSc Finance and Economics detailed module information

MSc Finance and Economics detailed module information MSc Finance and Economics detailed module information Example timetable Please note that information regarding modules is subject to change. TERM 1 TERM 2 TERM 3 INDUCTION WEEK EXAM PERIOD Week 1 EXAM

More information

Navigating through flexible bond funds

Navigating through flexible bond funds WHITE PAPER February 2015 For professional investors Navigating through flexible bond funds Risk management as a key focus point Kommer van Trigt Winfried G. Hallerbach Navigating through flexible bond

More information

9 Questions Every ETF Investor Should Ask Before Investing

9 Questions Every ETF Investor Should Ask Before Investing 9 Questions Every ETF Investor Should Ask Before Investing 1. What is an ETF? 2. What kinds of ETFs are available? 3. How do ETFs differ from other investment products like mutual funds, closed-end funds,

More information

Derivative Users Traders of derivatives can be categorized as hedgers, speculators, or arbitrageurs.

Derivative Users Traders of derivatives can be categorized as hedgers, speculators, or arbitrageurs. OPTIONS THEORY Introduction The Financial Manager must be knowledgeable about derivatives in order to manage the price risk inherent in financial transactions. Price risk refers to the possibility of loss

More information

ECON 422A: FINANCE AND INVESTMENTS

ECON 422A: FINANCE AND INVESTMENTS ECON 422A: FINANCE AND INVESTMENTS LECTURE 10: EXPECTATIONS AND THE INFORMATIONAL CONTENT OF SECURITY PRICES Mu-Jeung Yang Winter 2016 c 2016 Mu-Jeung Yang OUTLINE FOR TODAY I) Informational Efficiency:

More information

J.H. ELLWOOD & ASSOCIATES, INC. 33 West Monroe, Suite 1850 Chicago, IL 60603 (312) 782-5432 www.ellwoodassociates.com.

J.H. ELLWOOD & ASSOCIATES, INC. 33 West Monroe, Suite 1850 Chicago, IL 60603 (312) 782-5432 www.ellwoodassociates.com. J.H. ELLWOOD & ASSOCIATES, INC. 33 West Monroe, Suite 1850 Chicago, IL 60603 (312) 782-5432 www.ellwoodassociates.com March 31, 2015 This brochure provides information about the qualifications and business

More information

Chapter 19. Georgia Law for the Real Estate Sales Contract INTRODUCTION

Chapter 19. Georgia Law for the Real Estate Sales Contract INTRODUCTION Chapter 19 Georgia Law for the Real Estate Sales Contract INTRODUCTION As discussed in the previous chapter, one of the most important requirements of a real estate sales contract is that it must be "definite

More information

Chapter 1 The Scope of Corporate Finance

Chapter 1 The Scope of Corporate Finance Chapter 1 The Scope of Corporate Finance MULTIPLE CHOICE 1. One of the tasks for financial managers when identifying projects that increase firm value is to identify those projects where a. marginal benefits

More information

The CAPM (Capital Asset Pricing Model) NPV Dependent on Discount Rate Schedule

The CAPM (Capital Asset Pricing Model) NPV Dependent on Discount Rate Schedule The CAPM (Capital Asset Pricing Model) Massachusetts Institute of Technology CAPM Slide 1 of NPV Dependent on Discount Rate Schedule Discussed NPV and time value of money Choice of discount rate influences

More information

Single Stock Futures ( SSF ) Simple and constant gearing

Single Stock Futures ( SSF ) Simple and constant gearing Single Stock Futures ( SSF ) Simple and constant gearing 1 Content Situation 3 Simple geared share trading simple constant gearing single stock futures Solution 4 What are single stock futures? 5 Gearing

More information

Work incentives and household insurance: Sequential contracting with altruistic individuals and moral hazard

Work incentives and household insurance: Sequential contracting with altruistic individuals and moral hazard Work incentives and household insurance: Sequential contracting with altruistic individuals and moral hazard Cécile Aubert Abstract Two agents sequentially contracts with different principals under moral

More information

Are Unconstrained Bond Funds a Substitute for Core Bonds?

Are Unconstrained Bond Funds a Substitute for Core Bonds? TOPICS OF INTEREST Are Unconstrained Bond Funds a Substitute for Core Bonds? By Peter Wilamoski, Ph.D. Director of Economic Research Philip Schmitt, CIMA Senior Research Associate AUGUST 2014 The problem

More information

FREQUENTLY ASKED QUESTIONS March 2015

FREQUENTLY ASKED QUESTIONS March 2015 FREQUENTLY ASKED QUESTIONS March 2015 Table of Contents I. Offering a Hedge Fund Strategy in a Mutual Fund Structure... 3 II. Fundamental Research... 4 III. Portfolio Construction... 6 IV. Fund Expenses

More information

Institute for Empirical Research in Economics University of Zurich. Working Paper Series ISSN 1424-0459. Working Paper No. 229

Institute for Empirical Research in Economics University of Zurich. Working Paper Series ISSN 1424-0459. Working Paper No. 229 Institute for Empirical Research in Economics University of Zurich Working Paper Series ISSN 1424-0459 Working Paper No. 229 On the Notion of the First Best in Standard Hidden Action Problems Christian

More information

ENTREPRENEURIAL FINANCE: Strategy Valuation and Deal Structure

ENTREPRENEURIAL FINANCE: Strategy Valuation and Deal Structure ENTREPRENEURIAL FINANCE: Strategy Valuation and Deal Structure Chapter 9 Valuation Questions and Problems 1. You are considering purchasing shares of DeltaCad Inc. for $40/share. Your analysis of the company

More information

Response to European Commission Consultation Document on Undertakings for Collective Investment in Transferable Securities ( UCITS )

Response to European Commission Consultation Document on Undertakings for Collective Investment in Transferable Securities ( UCITS ) Association for Financial Markets in Europe Response to European Commission Consultation Document on Undertakings for Collective Investment in Transferable Securities ( UCITS ) 24 October 2012 The Association

More information

Review for Exam 2. Instructions: Please read carefully

Review for Exam 2. Instructions: Please read carefully Review for Exam 2 Instructions: Please read carefully The exam will have 25 multiple choice questions and 5 work problems You are not responsible for any topics that are not covered in the lecture note

More information