We build a structural two-factor model of default where the stock market index is one of the stochastic factors. We allow the firm to adjust its leverage ratio in response to changes in the business climate for which the past performance of the stock market index acts as a proxy. We assume that...

By attaching collateral to a derivatives contract, margining supposedly reduces default risk. In this paper, we rst develop a set of testable hypotheses about the eects of margining on banks' welfare, trading volume, and default risk in the context of a stylized banking sector equilibrium model....

In this article, we study the effect of liquidity risk on the performance of various hedge fund portfolio strategies. The portfolio strategies in each hedge fund style are formed by incorporating predictability in: (i) managerial skills, (ii) fund risk loadings, and (iii) benchmark returns. As...

In this study, we estimate the level of financial integration using a multivariate GARCH(1,1)-M return generating model allowing for partial market integration as well as for the pricing of systematic emerging market risk. We find that emerging markets still remain to a large extent segmented...

Seminal work in finance, economics, and psychology has documented that individuals tell the truth more often than standard economic models predict. But researchers have so far only indirectly inferred a preference for truth-telling from agents’ observed behavior. Using experiments, we explore...

In this paper we present a two-factor model, which values American crude oil futures options using the spot price and the net marginal convenience yield of crude as the relevant state variable. The model also accounts for a non-stationary market price of convenience yield risk, the value of...

We investigate the effects of margining, a widely-used mechanism for attaching collateral to derivatives contracts, on derivatives trading volume, default risk, and on the welfare in the banking sector. First, we develop a stylized banking sector equilibrium model to develop some basic intuition...

We conduct a laboratory experiment in which we expose participants to situational social norms of approval or disapproval of lying. While participants on average conform to the situational pressure, the results highlight important differences in individual reactions. Situational norms crowd out...

Extant research shows that CEO characteristics affect earnings management. This paper studies how investors infer a specific characteristic of CEOs, namely moral commitment to honesty, from earnings management and how this perception - in conjunction with their own social and moral preferences -...