Desautels inaugurates world’s first pension portfolio challenge

This weekend, twenty-five student teams from Berkeley, Chicago, Sydney, Hong Kong, and Geneva, amongst others will participate in the final round of the McGill International Portfolio Challenge.

Organized by Desautels BCom students under the guidance of Professor Sebastien Betermier, this is the world’s first pension asset allocation competition.

Market and Regional Segmentation and Risk Premia in the First Era of Financial Globalization

Authors: David Chambers, Sergei Sarkissian and Michael J. Schill

Publication: Review of Financial Studies, Forthcoming

Abstract:

We study market segmentation effects using data on U.S. railroads that list their bonds in New York and London between 1873 and 1913. This sample provides a unique setting for such analysis because of the precision offered by bond yields in cost of capital estimation, the geography-specific nature of railroad assets, and ongoing substantial technological change. We document a significant reduction in market segmentation over time. Whilst New York bond yields exceeded those in London in the 1870s, this premium disappeared by the early 1900s. However, the segmentation premium persisted in the more remote regions of the United States.

Read full article: Review of Financial Studies

Two-Sided Reputation in Certification Markets

Authors: Matthieu Bouvard and Raphaël Levy

Publication: Management Science, Forthcoming

Abstract:

In a market where sellers solicit certification to overcome asymmetric information, we show that the profit of a monopolistic certifier can be hump-shaped in its reputation for accuracy: a higher accuracy attracts high-quality sellers but sometimes repels low-quality sellers. As a consequence, reputational concerns may induce the certifier to reduce information quality, thus depressing welfare. The entry of a second certifier impacts reputational incentives: when sellers only solicit one certifier, competition plays a disciplining role and the region where reputation is bad shrinks. Conversely, this region may expand when sellers hold multiple certifications.

Read full article: Management Science

Illiquidity Premia in the Equity Options Market

Authors: Peter Christoffersen, Ruslan Goyenko, Kris Jacobs, Mehdi Karoui

Publication: Review of Financial Studies, Vol. 31, No. 3, March 2018

Abstract:

Standard option valuation models leave no room for option illiquidity premia. Yet we find the risk-adjusted return spread for illiquid over liquid equity options is 3:4% per day for at-the-money calls and 2:5% for at-the-money puts. These premia are computed using option illiquidity measures constructed from intraday effective spreads for a large panel of U.S. equities, and they are robust to different empirical implementations. Our findings are consistent with evidence that market makers in the equity options market hold large and risky net long positions, and positive illiquidity premia compensate them for the risks and costs of these positions.

Read full article: Review of Financial Studies

Mathieu Bouvard wins SFI Outstanding Paper Award 2017

The Swiss Finance Institute (SFI) has attributed its Outstanding Paper Award to "The Blockchain Folk Theorem," a research paper by Bruno Biais, Toulouse School of Economics, Christophe Bisière, Toulouse School of Economics, Matthieu Bouvard, McGill University, and Catherine Casamatta, Toulouse School of Economics, that investigates the stability of the blockchain protocol in a game-theoretic approach.

Home Bias Abroad: Domestic Industries and Foreign Portfolio Choice

Authors: David Schumacher

Publication: Review of Financial Studies, Forthcoming

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Citron hits Shopify in short attack, Professor Lester weighs in

Shopify recently came out in defense of its business model following an attack on the company by short seller Andrew Left of Citron. According to Desautels professor Kenneth Lester, short sellers actually do an investigative service by exposing information about companies that might have otherwise been strategically concealed; though he remains wary of the insider trading sometimes tied to shorts.

Scenario generation for long run interest rate risk assessment

Authors: Robert Engle, Guillaume Roussellet, Emil Siriwardane

Publication: Journal of Econometrics, Vol. 201, No. 2, December 2017

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Staying at zero with affine processes: An application to term structure modelling

Authors: Alain Monfort, Fulvio Pegoraro, Jean-Paul Renne and Guillaume Roussellet

Publication: Journal of Econometrics, Vol. 201, No. 2, 2017, pp. 348-366.

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Professor Chaudhury on the new Rohingya approach

In a blog post for bdnews24.com, Desautels professor Mo Chaudhury assesses the Bangladesh Government’s response to the humanitarian crisis in Myanmar concerning the Rohingyas, asserting that the current response contrasts with past related policy.

Mo Chaudhury on the Rohingya crisis, Bangladesh and the West

In a recent op-ed for Bangladeshi online newspaper bdnews24.com, Desautels Professor Mo Chaudhury explores the unfolding Rohingya humanitarian disaster in Myanmar, then outlines the corruption at the heart of the crisis and the players who stand to benefit from it.

Professor Vihang Errunza named a Fellow of the Royal Society of Canada

The Desautels Faculty of Management is pleased to congratulate Professor Vihang Errunza, Associate Dean, Research, on being named a Fellow of the Royal Society of Canada’s Social Sciences Academy.

Investment, overconfidence and the female edge

A piece in Les Affaires looks at how our emotions and confidence can get the better of us when it comes to our investment practises, citing the panic in 2008 as proof that the markets are ruled more by investor emotion than by rationality.

Stock overreaction to extreme market events

Authors: Pedro Piccolia, Mo Chaudhury, Alceu Souza and Wesley Vieirada Silvaa

Publication: The North American Journal of Economics and Finance, Vol. 41, July 2017

Abstract: