Owners of private companies often invest a substantial share of their net worth in one company, which exposes them to idiosyncratic risk. For US companies we investigate whether owners require compensation for lack of diversification in the form of higher returns to equity. Exposure to...

The risk of a credit portfolio depends crucially on correlations between latent covariates, for instance the probability of default (PD) in different economic sectors. Often, correlations have to be estimated from relatively short time series, and the resulting estimation error hinders the...

We study the returns the venture capital and private equity investment from 221 venture capital and private equity funds that are part of 72 venture capital and private equity firms, 5040 entrepreneurial firms (3826 venture capital and 1214 private equity), and spanning 32 years (1971 - 2003)...

We analyze governance with a dataset on investments of venture capitalists in 3848 portfolio firms in 39 countries from North and South America, Europe and Asia spanning 1971-2003. We find that cross-country differences in Legality have a significant impact on the governance structure of...

This paper analyzes banks' choice between lending to firms individually and sharing lending with other banks, when firms and banks are subject to moral hazard and monitoring is essential. Multiple-bank lending is optimal whenever the benefit of greater diversification in terms of higher...

What do academics have to offer market risk management practitioners in financial institutions? Current industry practice largely follows one of two extremely restrictive approaches: historical simulation or RiskMetrics. In contrast, we favor flexible methods based on recent developments in...

Assumptions about the dynamic and distributional behavior of risk factors are crucial for the construction of optimal portfolios and for risk assessment. Although asset returns are generally characterized by conditionally varying volatilities and fat tails, the normal distribution with constant...

Retirees confront the difficult problem of how to manage their money in retirement so as to not outlive their funds while continuing to invest in capital markets. We posit a dynamic utility maximizer who makes both asset location and allocation decisions when managing her retirement financial...

This study develops a novel 2-step hedonic approach, which is used to construct a price index for German paintings. This approach enables the researcher to use every single auction record, instead of only those auction records that belong to a sub-sample of selected artists. This results in a...

Traditional portfolio optimization has been often criticized since it does not account for estimation risk. Theoretical considerations indicate that estimation risk is mainly driven by the parameter uncertainty regarding the expected asset returns rather than their variances and covariances....