10/20/2014

What Happened to the U.S. Constitution? Effects of Changing Interpretations on International Debt and Banking—Part I

Contrary to the wishes of originalists, the U.S. Constitution evolves. However, it evolves in strange, almost incomprehensible ways.

For instance, the reach of the First and Second Amendments has increased drastically. The “freedom of speech” clause in the First Amendment, once admitting restrictive Comstock obscenity laws, now has extended to freedom (and anonymity) of money spent by corporations on political advertising, thanks to the Supreme Court’s ruling in Citizens United. The Second Amendment entitles every citizen, age and mental state notwithstanding, to obtain firepower on the scale of a post–Revolutionary War battalion—and much more accurate at that.

Continue reading "What Happened to the U.S. Constitution? Effects of Changing Interpretations on International Debt and Banking—Part I" »


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10/15/2014

The Courage to Lead

This post previously ran on the Huffington Post as part of the “Plan B for Business” series to help articulate a Plan B for Business.

Henrik O. Madsen joined Norway’s DNV, the world’s leading ship and offshore classification company, in 1982.  Thirty-two years later, as Group CEO of the recently merged DNV GL, now a Euro 2.5 billion global enterprise, Henrik made a speech few CEOs will ever have the opportunity to attempt.

Continue reading "The Courage to Lead" »

10/13/2014

Real Eff ects of the Sovereign Debt Crisis in Europe: Evidence from Syndicated Loans

ABSTRACT

AcharyaThis paper shows that the sovereign debt crisis and the resulting credit crunch in the periphery of the Eurozone lead to negative real e ffects for borrowing firms. Using a hand matched sample of loan information from Dealscan and accounting information from Amadeus, we show that firms with a higher exposure to banks a ffected by the sovereign debt crisis become financially constrained during the crisis. As a result, these firms have signifi cantly lower employment growth, capital expenditures, and sales growth rates. We show that our results are not driven by country or industry-specifi c macroeconomic shocks or a change in the demand for credit of borrowing fi rms. Thus, the high interdependence of bank and sovereign health and the resulting credit crunch is one important contributor to the severe economic downturn in the southern European countries during the sovereign debt crisis.


Webinar-9-11-14


–Viral V. Acharyaa, Tim Eisertb, Christian Eu ngerc, Christian Hirschd

Continue reading "Real E ects of the Sovereign Debt Crisis in Europe: Evidence from Syndicated Loans" »

The authors appreciate helpful comments from Matteo Crosignani, Giovanni Dell'Ariccia, Daniela Fabbri, Rainer Haselmann, Jhangkai Huang, Yi Huang, Victoria Ivashina, Augustin Landier, and Marco Pagano, Sjoerd van Bekkum, as well as from conference participants at the 2014 EFA Meeting, the Bank performance, financial stability and the real economy conference (Naples, Italy), and at the International Conference on Financial Market Reform and Regulation (Beijing, China) and seminar participants in Mainz, Konstanz, at the European Central Bank, and at the 2014 Tsinghua Finance Workshop. Eisert is grateful for financial support by the German National Scientifi c Foundation. Hirsch gratefully acknowledges support from the Research Center SAFE, funded by the State of Hessen initiative for research Loewe. Email addresses: vacharya@stern.nyu.edu (Viral V. Acharya), eisert@ese.eur.nl (Tim Eisert), ceufinger@iese.edu (Christian Eu nger), hirsch@finance.uni-frankfurt.de (Christian Hirsch)

aNew York University, CEPR, and NBER bErasmus University Rotterdam cIESE Business School dGoethe University Frankfurt and SAFE


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10/08/2014

Visit the Wall Street Collectors Bourse IV

During the Revolutionary War, Jonathan Trumbull, then-governor of Connecticut and after whom Trumbull, Connecticut, is named, raised a lot of money to help its funding. Connecticut was the main source of supplies for the northern and middle states, and more of its debt instruments survive from the period than from any other state. In 1864, this certificate was issued to recall the sacrifices made by Trumbull, also known as “Brother Jonathan.” As General George Washington’s close friend, advisor, and aide throughout the war, the General gave him his nickname. "We must consult Brother Jonathan,” is used in New England to this day, an iconic symbol of the part the northern colonies played in our independence from Great Britain.

Continue reading "Visit the Wall Street Collectors Bourse IV" »

10/07/2014

Plain Language: Let’s Get Parenthetical

Plain language makes your documents more appealing and easier to understand. But circumstances may require you to use jargon. For example, you may be a financial marketer or professional working for bosses or departments that insist on using technical or unfamiliar terms. You can help reader comprehension by explaining the term in the sentence where it first appears. Parenthetical explanations are useful, whether you literally enclose the explanation in parentheses or set it off using some other technique.

Continue reading "Plain Language: Let’s Get Parenthetical" »

10/06/2014

More than the Mainstream: Media

More than the Mainstream

In reading Alexandra Scaggs' recent article in the Wall Street Journal  titled "Dow Closes At Record High As Fed Reassures On Rates," I was struck how different the mainstream thinks from some of the people with whom I find myself in simpatico.

Scaggs quotes Curtis Holden, senior investment officer with Tanglewood Wealth Management, "We're not looking for any sudden moves by the Fed, and the comments were confirmation of that…Stocks look OK, and at the same time they don't look cheap either," said Tanglewood's Mr. Holden. "But relative to [bonds], stocks look pretty compelling…"

Continue reading "More than the Mainstream: Media" »

10/05/2014

What Type of Financial Advisor Advises You?

For individual investors seeking advice, the world they enter can be a confusing place. I’m thinking here of the different types of financial advisors that offer to help investors deploy their capital.  Non-finance people shouldn’t need to bother themselves with subtle elements of the investing regulatory landscape, but there are some things they’re better off knowing. Financial advisors don’t all operate with the same set of objectives. Some, who work for investment advisory firms and are Registered Investment Advisors (RIAs) are bound by the 1940 Investment Advisors Act to conduct themselves as a fiduciary, meaning they’re legally obliged to put their clients’ interests first. It seems like a sensible standard, but it’s not the only standard. There’s another class of financial advisor who work for broker-dealers rather than investment advisory firms. Their activities are bound by a lower standard of suitability and disclosure.

Continue reading "What Type of Financial Advisor Advises You?" »

09/23/2014

The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk-Sharing in General Equilibrium

ABSTRACT

SvnieuweThis paper studies the role of time-varying risk premia as a channel for generating and propagating ‡fluctuations in housing markets, aggregate quantities, and consumption and wealth heterogeneity. We study a two-sector general equilibrium model of housing and non-housing production where heterogeneous households face limited opportunities to insure against aggregate and idiosyncratic risks. The model generates large variability in the national house price-rent ratio, both because it ‡fluctuates endogenously with the state of the economy and because it rises in response to a relaxation of credit constraints and decline in housing transaction costs (…financial market liberalization). These factors, together with a rise in foreign ownership of U.S. debt calibrated to match the actual increase over the period 2000-2006, generate ‡fluctuations in the model price-rent ratio that explains a large fraction of the increase in the national price-rent ratio observed in U.S. data over this period. The model also predicts a sharp decline in home prices starting in 2007, driven by the economic contraction and by a presumed reversal of the …financial market liberalization. Fluctuations in the model’s price-rent ratio are driven by changing risk premia, which ‡fluctuate endogenously in response to cyclical shocks, the …financial market liberalization, and its subsequent reversal. By contrast, we show that the infl‡ow of foreign money into domestic bond markets plays a small role in driving home prices, despite its large depressing infl‡uence on interest rates. Finally, the model implies that procyclical increases in equilibrium price-rent ratios re‡flect rational expectations of lower future housing returns, not higher future rents. JEL: G11, G12, E44, E21.


Webinar-9-11-14


–Jack Favilukis, LSE; Sydney C. Ludvigson, NYU and NBER; Stijn Van Nieuwerburgh, NYU NBER CEPR

Continue reading "The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk-Sharing in General Equilibrium" »

Favilukis: Department of Finance, London School of Economics, Houghton Street, London WC2A 2AE; Email: j.favilukis@lse.ac.uk, http://pages.stern.nyu.edu/~jfaviluk. Ludvigson: Depart- ment of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012; Email: sydney.ludvigson@nyu.edu; Tel: (212) 998-8927; http://www.econ.nyu.edu/user/ludvigsons/. Van Nieuwerburgh : Department of Finance, Stern School of Business, New York University, 44 W. 4th Street, 6th Floor, New York, NY 10012; Email: svnieuwe@stern.nyu.edu; Tel: (212) 998-0673; http://pages.stern.nyu.edu/ svnieuwe/. This material is based on work supported by the National Science Foundation under Grant No. 1022915 to Ludvigson and Van Nieuwerburgh. We are grateful to Alberto Bisin, Daniele Coen-Pirani, Dean Corbae, Morris Davis, Bernard Dumas, Raquel Fernandez, Car- los Garriga, Bruno Gerard, Francisco Gomes, James Kahn, John Leahy, Chris Mayer, Jonathan McCarthy, Francois Ortalo-Magne, Stavros Panageas, Monika Piazzesi, Richard Peach, Gianluca Violante, Amir Yaron, and to seminar participants at Erasmus Rotterdam, the European Central Bank, ICEF, HEC Montreal, Lon- don School of Economics, London Business School, Manchester Business School, NYU, Stanford Economics, Stanford Finance, UCLA Finance, University of California Berkeley Finance, Université de Lausanne, Uni- versity of Michigan, University of Tilburg, University of Toronto, the University of Virginia McIntyre/Darden joint seminar, the American Economic Association annual meetings, January 2009 and January 2010, the ERID conference at Duke 2010, the London School of Economics Conference on Housing, Financial Markets, and the Macroeconomy May 18-19, 2009, the Minnesota Workshop in Macroeconomic Theory July 2009, the NBER Economic Fluctuations and Growth conference, February 2010, the European Finance Association meetings Frankfurt 2010, the NBER PERE Summer Institute meeting July 2010, the SED Montreal 2010, and the Utah Winter Finance Conference February 2010, the NBER Asset Pricing Meeting April 2011, the 2011 WFA meeting, the Baruch NYC Real Estate Meeting 2012, and the 2012 Philadephia Workshop on Macroeconomics for helpful comments. Any errors or omissions are the responsibility of the authors.

09/22/2014

Derivatives and Systemic Risk: It’s Also about Jobs

Derivatives are the least understood component of systemic risk. Derivatives pose issues of size, measurement, and behavior—unlike loans. They string the biggest banks together in ways unseen three decades ago and even undermine job creation. Government officials may have had to bail in 2008, but nobody can claim that there will be no more bailouts until derivatives are better understood and managed.

Continue reading "Derivatives and Systemic Risk: It’s Also about Jobs" »

09/18/2014

Three Popular Myths about the CFA Exam Multiple Choice Question Format

As every CFA® candidate will know, the CFA exams are largely comprised of multiple choice questions. This doesn't mean that they're easy to pass - as we've calculated, you're statistically more likely to win Euromillions than to pass the CFA exams by chance.

There are also many myths associated with the CFA multiple choice question format that CFA candidates still wrongly assume. We've covered tips on how to guess intelligently in the exams, and to our regular readers some of these will come as no surprise. But especially for those taking the exam in December, in this post we aim to bust more myths and clear the air for our readers about the CFA multiple choice question format before the upcoming exams.

Myth #1: Multiple-choice questions - it isn't that hard.

When I was in high school, I loved multiple-choice questions. They were the ideal exam format for my unrivalled laziness at studying, matched only by my desire to do well. And with multiple-choice, I could serve both interests - reading between the lines, you could sometimes correctly deduce the right answer without much contextual knowledge of the topic, as the wrong answers were not very convincing substitutes. This means you could study a heck of a lot less and still manage to do reasonably well. Exploiting this flaw in the system has served millions of lazy students like me very well through the decades.

The CFA exams, however, is not one of these systems.

I think it’s fair to say that CFA Institute probably puts as much effort into every wrong answer (distractors) than the right one. Creating the right answer is relatively easy for CFA Institute - you just answer the question correctly, and that’s it. To design the distractors, it’s a process of testing for most common mistakes made when one attempts the questions and offering them alongside the correct answer - meaning that two of the most common wrong answers among candidates tend to accompany the right answer.

Continue reading "Three Popular Myths about the CFA Exam Multiple Choice Question Format" »

09/17/2014

Good Habits of Top Performers

Each career is unique.  But, looking more closely, there are a handful of skills and habits that “successful” people commonly share.  Here are four of them, based on my professional experience.  

Continuing learning 

This will require dedication and discipline—both of which are difficult to fit into a lifestyle of quasi-instant gratification.  Moreover, in an increasingly dynamic learning environment, the quality and cost (where "expensive" might not always equal "good") of materials and instruction can vary enormously.  

That said, continuing education is very important at every stage of one’s career. We tend to disregard it at the beginning when we are fresh out of school, as the steep on-the-job learning curve can give the misleading impression that we are reaching maximum capacity. However, this is not enough. Those who get ahead continue to learn early on, beyond the daily grind. This is even more critical as we progress in our careers, but without getting any easier. The most successful have turned learning into a habit.  

Continue reading "Good Habits of Top Performers" »

09/10/2014

Email Subject Lines: How to Handle Boring Disclosures

What subject line should you use when you send clients a disclosure via email? This question came up came up when I spoke to the Financial Planning Association of Massachusetts in 2013. 

The problem: Losing your clients’ attention

You send some emails because you need to move clients to action. Others, such as disclosures required by regulators, are less compelling.Choose your subject lines carefully, if you don’t want these emails to discourage your clients from reading your emails.

Continue reading "Email Subject Lines: How to Handle Boring Disclosures" »

09/09/2014

Book Review: China Goes West

China-Goes-West

The financial world lives to gain from new trends, to get out front, grab an edge, and bring in the profits before the trend matures and a lot of competition moves in. With this focus, Joel Backaler's new book is especially welcome in its description of, and insights on, the ramping up of Chinese overseas investments. China Goes West: Everything You Need to Know About Chinese Companies Going Global has detailed, sophisticated analysis of the Chinese companies that are expanding outward, and of what this can involve. It is a realistic picture rather than just a trend forecast.

Continue reading "Book Review: China Goes West" »

09/08/2014

The “Greatest” Carry Trade Ever? Understanding Eurozone Bank Risks

ABSTRACT Vacharya

We show that eurozone bank risks during 2007-2013 can be understood as “carry trade” behavior. Bank equity returns load positively on peripheral (Greece, Italy, Ireland, Portugal, Spain, or GIIPS) bond returns and negatively on German government bond returns, which generated “carry” until the deteriorating GIIPS bond returns adversely affected bank balance sheets. We find support for risk-shifting and regulatory arbitrage motives at banks in that carry trade behavior is stronger for large banks and banks with low capital ratios and high risk-weighted assets. We also find evidence for home bias and moral suasion in the subsample of GIIPS banks. 


Webinar-9-11-14


–Viral V. Acharya† Sascha Steffen‡

We thank an anonymous referee, Jacob Boudoukh, Martin Brown, Filippo di Mauro, Ruediger Fahlenbrach, Mariassunta Giannetti, Paul Glasserman, Paul Heidhues, Martin Hellwig, Gur Huberman, Vasso Ioannidou, Anil Kashyap, Bryan Kelly, Jan-Pieter Krahnen, David Lesmond, Christian Leuz, Marco Pagano, Hélène Rey, Joerg Rocholl, Anthony Saunders, Phil Strahan, Anjan Thakor, Elu von Thadden, Lucy White, Andrew Winton and participants in the 2014 Moody’s / SAIF Credit Research Conference, 2014 Conference on Regulating Financial Intermediaries, 2013 SFS Cavalcade, 2013 NBER Summer Institute IFM, 2013 CAF Summer Research Conference, 2013 FIRS Conference, 12th annual FDIC / JFSR conference, 49th Bank Structure and Competition Conference, 2012 C.R.E.D.I.T., 2nd Mofir Ancona and seminar participants at Darden, Deutsche Bundesbank, ESMT, Goethe University, Indiana, Lancaster, Leeds, Mainz, Norges Bank, NYU Stern, Ohio State University, Osnabrueck, and Tulane for valuable comments and suggestions. We are grateful to Matteo Crosignani and Diane Pierret for excellent research assistance. 

Continue reading "The “Greatest” Carry Trade Ever? Understanding Eurozone Bank Risks" »

09/04/2014

Young, Fabulous and Unemployed: Strategies for Survival, Part II

Early-autumn weather is bracing. Millions of students eagerly gear up for a new school year.  Business leaders fine-tune their strategy for the fourth-quarter push.  It’s a time of optimism, renewed energy, and forward-looking thinking. 

But these times are painful for people who are unemployed. So, if you’re a recent college grad, it’s understandable that you miss the structure, rhythms, and deadlines of the semester. 

Bottom line: Take a job—any job.  As long as it won’t harm our health or violate you ethics, any job is better than no job.  If you hate it, leave it.  But it’s worth a try. 

Continue reading "Young, Fabulous and Unemployed: Strategies for Survival, Part II" »

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