The Relation Between Bank Resolutions and Information Environment: Evidence from the Auctions for Failed Banks

This study examines the impact of disclosure requirements on the resolution costs of failed banks. Consistent with the hypothesis that disclosure requirements mitigate information asymmetries in the auctions for failed banks, I find that, when failed banks are subject to more comprehensive disclosure requirements, regulators incur lower costs of closing a bank and retain a lower portion of the failed bank's assets, while bidders that are geographically more distant are more likely to participate in the bidding for the failed bank. The paper provides new insights into the relation between disclosure and the reorganization of a banking system when the regulators' preferred plan of action is to promote the acquisition of undercapitalized banks by healthy ones. The results suggest that disclosure regulation policy influences the cost of resolution of a bank and, as a result, could be an important factor in the definition of the optimal resolution strategy during a banking crisis event.     

Beyond the Transaction: Banks and Mortgage Default of Low‐Income Homebuyers

We evaluate the effects of the lending institution and soft information on mortgage loan performance for low‐income homebuyers. We find that even after controlling for the propensity of a borrower to get a loan from a local bank based on observable characteristics, those who receive a loan from a local bank branch are significantly less likely to become delinquent or default than other bank or nonbank borrowers, consistent with an unobserved information effect. These effects are most pronounced for loans originated to borrowers with marginal credit, where soft information may have a stronger effect. These findings support previous research on information‐driven lending, and provide additional explanation for observed differences in mortgage loan performance between bank and nonbank lenders.     

Macroeconomic risk and hedge fund returns

This paper estimates hedge fund and mutual fund exposure to newly proposed measures of macroeconomic risk that are interpreted as measures of economic uncertainty. We find that the resulting uncertainty betas explain a significant proportion of the cross-sectional dispersion in hedge fund returns. However, the same is not true for mutual funds, for which there is no significant relationship. After controlling for a large set of fund characteristics and risk factors, the positive relation between uncertainty betas and future hedge fund returns remains economically and statistically significant. Hence, we argue that macroeconomic risk is a powerful determinant of cross-sectional differences in hedge fund returns.     

Term structure information and bond strategies

We examine term structure theories by using a novel approach. We form bond investment strategies based on different theories of the term structure in order to determine which strategy performs best. When using a manipulation-proof performance measure, we find that consistent with prior literature, an active strategy that is based on time varying term premiums can indeed form the basis of a successful bond strategy that outperforms an unbiased expectation inspired passive bond buy and hold strategy. This is true, however, for an earlier time period when the literature first made this claim. In a later time period, we find that the passive buy and hold strategy is significantly superior to all active strategies. This result is confirmed by statistical tests and it suggests that once it became known that an active strategy based on time varying term premiums could outperform a passive buy and hold strategy, the markets adjusted and arbitraged away this opportunity. Overall, it appears that the unbiased expectation hypothesis is the most likely explanation of the behaviour of the term structure during more recent times. This is because economically and statistically significant superior performance cannot be achieved if one uses information from the forward curve or the term structure as a guide to adjusting bond portfolios in response to changes in the term premium.     

Commentary on Hassenzahl's ‘The effect of uncertainty on “risk rationalizing” decisions’

Contemporary societies have been characterized as risk societies. While considerable research on individualized risk and risk management exists, voluntary risk taking has so far found less attention. This article explores the tensions between voluntary risk-taking at the individual level and risk management at the organizational level by analysing aid work as edgework. Between 1990s and 2009, the number of attacks on aid personnel including killing, kidnapping and armed attacks has steadily increased. Security and how to deal with it has become a central concern of aid organizations. While the increased insecurity of aid workers and the responses of aid organizations to security threats have been widely documented, less attention has been paid to the role risk-taking plays in aid workers lives. Edgework is a form of voluntary risk-taking and has been primarily studied in the context of risk-taking leisure such as action and adventure sport. Aid work encompasses a wide range of interventions, including development and emergency relief. Depending on assignment and region, people working in the aid industry find themselves in high- or low-risk situations. Based on biographical interviews with people working in aid, this article addresses motivations for getting involved in aid work and experiences of danger in Aidland. Contrasting individualized risks with security procedures of aid organizations, my article contributes to a better understanding of risk-taking behaviour in general and in the context of overseas aid in particular.     

The Deepwater Horizon explosion: non-technical skills,safety culture,and system complexity

The explosion and destruction of the Deepwater Horizon (DH) was a watershed moment for safety management in the US oil and gas industry. The 2011 National Oil Spill Commission investigation identified a range of operational behaviours and underlying safety management problems that were causal to the mishap. Yet, to date these have not been systematically considered within a human factors framework. To achieve this, we draw upon two applied psychology domains that are highly influential within safety research. First, we apply non-technical skills (NTS) (social and cognitive skills that underpin safe performance in complex work environments) theorem to understand operational activities in the lead-up and occurrence of the well blowout. NTS research is used to develop interventions for training and observing safety behaviours (e.g. decision-making, teamwork). Second, we apply safety culture theory to understand how the organisational and industry environment shaped the management of risk. Safety culture research is used to understand and change the socio-technical constraints and enablers of safety activity in high-risk workplaces. Finally, to integrate these perspectives, we take a systems-thinking perspective to understand the mishap. A common critique of accident narratives is their failure to systematically consider how the components of an incident interact together to escalate risk. From a systems-thinking perspective, understanding the interactions leading to the DH mishap is crucial for ensuring interventions are effective in preventing future mishaps. We develop an accident model that captures the various interactions and system factors leading to the blowout.     

Posterior model probabilities via path-based pairwise priors

We focus on Bayesian model selection for the variable selection problem in large model spaces. The challenge is to search the huge model space adequately, while accurately approximating model posterior probabilities for the visited models. The issue of choice of prior distributions for the visited models is also important.     

Dynamic analysis of interventions designed to achieve millennium development goals (MDG): The case of Ghana

An increasing number of countries are orientating their development strategies based on the millennium development goals (MDG), a broad set of directives agreed to by the United Nations (UN) in the year 2000. Developing coherent plans to achieve MDG has been complicated by their multidisciplinary nature, and by the complexity of the system being managed. The “system” here is the socio-economic construct within which populations live and operate. In an effort to support this planning process, various approaches have been developed to help realize MDG within specified budgets. The work described here complements the most commonly used approaches by analyzing the impact of alternative interventions in an integrated socio-economic-environmental framework. In doing so, we utilize system dynamics, which is well-suited to support the analysis of dynamic, complex issues such as those that characterize MDG planning. Such an approach allows us to estimate impacts of MDG-related interventions on the economic and demographic development of countries under study, as well as the possible synergies between and amongst selected interventions, e.g., those involving education and health. Results indicate that failure to account for such factors can lead to sub-optimal strategies. Our objective is thus to provide policy-makers with a more comprehensive view of the outcomes generated by alternative MDG interventions, with emphasis on the ability to finance given strategies.     

Normative rationality in venture capital financing

We examine whether venture capitalists (VCs) make investments based on normative rationality, which is derived from habitual and embedded norms and traditions indicative of a macroculture. Syndication and social and professional relations facilitate the development of shared decision-making frameworks. Using a four step methodology and a unique dataset of 139VC decisions and 82 independent VC assessments of those decisions, we find that the VC industry exhibits collective investment decision-making preferences, reflecting normative rationality. We offer implications for theory, practice, and future research.