Hening Liu, Wenbin Cao, and Xiaoman Duan ♦ We develop a real options model in which an entrepreneur facing ambiguity makes optimal investment and financing decisions for an innovation project. We introduce jumps in innovation returns and model investors’ aversion…
Mark Garmaise, Mark Jansen, and Adam Winegar ♦ We use negative durability shocks from vehicle discontinuations to study asset-backed lending (ABL) and income-based lending (IBL) in auto finance. Discontinuations lead to increased down payments, higher loan-to-value ratios, and larger post-default…
Christoph Herpfer and Gonzalo Maturana ♦ Credit rating agencies (CRAs) are less likely and slower to downgrade firms with performance-sensitive debt (PSD) if these downgrades increase borrowing costs. This effect is stronger when CRAs rate their most profitable clients and…
Nathan Lassance, Rodolphe Vanderveken, and Frédéric Vrins ♦ We introduce a method to determine the investor’s optimal portfolio size that maximizes the expected out-of-sample utility under parameter uncertainty. This portfolio size trades off between accessing investment opportunities and limiting the…
Yaron Levi ♦ We study whether information design influences consumer behavior in a randomized field experiment with users of an online account aggregation app. Participants received a personalized index representing their net worth as a lifetime monthly cash flow. The…
Soon Heng Leong ♦ This paper offers two novel backtests to evaluate the adequacy of well-known systemic risk measures such as CoVaR, MES, SES, and SRISK. Both the new backtests are robust to estimation risk, that is, their null distributions…
