iℚuant but also the finance department of IESEG organize seminars and events on a regular basis. To avoid the organization of too many events, iℚuant seminars will take place from October to December and from March to May of an academic year.
Seminars
Thursday, March, 14, 2024
Antoine Bouveret (ESMA)
“Bang for (breaking) the buck: Regulatory constraints and money market funds reforms”
Despite substantial regulatory reforms, US and EU money market funds (MMFs) experienced severe stress in March 2020. Funds investing in private assets such as EU Low Volatility Net Asset Value (LVNAV) MMFs faced acute challenges to meet regulatory requirements while facing high redemptions. Such funds must maintain their mark-to-market net asset value (NAV) within 20 basis points of a constant net asset value and must maintain a 30% share of assets that mature within one week. We develop a stylized model to show that under certain conditions related to outflows and the market liquidity of their assets, LVNAVs may face difficulties in fulfilling both regulatory constraints at the same time. We calibrate our model to EU and US data and evaluate different regulatory reforms. Removing the use of amortised cost has the largest positive effect in terms of resilience, while higher liquidity requirements have more limited effects, Improving the market liquidity of the assets MMFs invest in would substantially improve the resilience of MMFs. Introducing countercyclical liquidity buffers would also enhance their resilience, especially when the assets eligible to meet liquidity requirements are more liquid than the rest of the portfolio, and the effect is larger than increasing liquidity requirements. Overall, we find that, based on our market impact estimates, the NAV constraint is generally the binding one.
Thursday, November 9, 2023 (joint seminar with iRisk)
Pascal MAENHOUT (INSEAD)
“Model ambiguity versus model mis-specification in dynamic portfolio choice and asset pricing”
We study aversion to model ambiguity and misspecification in dynamic portfolio choice. Investors with relative risk aversion γ > 1 fear return persistence, while risk-tolerant investors (0 < γ < 1) fear return mean reversion, to confront model misspecification concerns when facing a model with IID returns. The intuition is that risk-averse (risk-tolerant) investors who are keen to hedge (speculate) intertemporally worry about an endogenous worst-case misspecification where returns persist (mean-revert) so that hedging (speculation) is impossible. A log investor is myopic and unaffected by model misspecification, therefore only worrying about model ambiguity among IID models. Rather than the multiplier approach of Hansen and Sargent (2001) we utilize a constraint approach, preserving homotheticity and tractability. Our model can explain evidence for the experience hypothesis, for non-participation in equity markets, as well as for extrapolative return expectations. In equilibrium, we show that model misspecification, unlike model ambiguity, can generate excess volatility, even with IID fundamentals.
Thursday, October 26, 2023
Stéphane GAUTHIER (Paris School of Economics)
“Fundamental volatility and financial stability”
Financial investors choose the capital they invest into risky firms based on the return they expect. The actual return depends on the aggregate investment, which gives rise to beauty-contest issues. The paper characterizes how the ability of investors to solve these issues relates to the amount of fundamental uncertainty. It exploits this link to provide a quantitative assessment of the contribution of fundamentals to market volatility. Volatility would be driven by fundamentals in most markets. If out-of-equilibrium beliefs matter, however, they significantly contribute to observed volatility.
Thursday, September 28, 2023
Cyril POUVELLE (Responsable de la Cellule de Recherche, Direction d’Etude et d’Analyse des Risques, ACPR)
“Basel III joint regulatory constraints: interactions and implications for the financing of the economy”
This paper examines the impact of multiple regulatory constraints on the financing of the economy in the context of Basel III regulation on capital and liquidity. We propose a simple theoretical model of bank lending decision to analyze interactions between these multiple regulatory requirements and the conditions under which some constraints bind while others do not. Building on the predictions of this model, we estimate the impact of these multiple regulatory requirements on lending growth, on a panel of 120 French banks since 2014. Our results indicate that two pairwise interactions have a significant effect on lending growth. We find a significant and partial level of substitutability between (i) the risk-based Tier 1 capital ratio and the leverage ratio as well as (ii) the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR). We also note that the former interaction between the two liquidity ratios is even more pronounced in periods of financial stress.
Thursday, April 20, 2023
Jean Edouard COLLIARD (HEC Paris)
“Measuring Regulatory Complexity”
Despite a heated debate on the perceived increasing complexity of financial regulation, a comprehensive framework to study regulatory complexity is lacking. We propose one inspired by the analysis of algorithmic complexity in computer science. We use this framework to distinguish different dimensions of complexity, classify existing complexity measures, develop new ones, compute them on two examples (Basel I and the Dodd-Frank Act) and validate them using novel experiments that involve the computation of risk-weighted assets under various rules. Our framework offers a quantitative approach to the policy trade-off between the precision and the complexity of regulation. The toolkit we develop is freely available and allows researchers to measure the complexity of any normative text as well as test alternative measures of complexity.
Thursday, January 26th, 2023
Olivier SCAILLET (Geneva School of Economics and Management and Swiss Finance Institute, Switzerland)
“A penalized two-pass regression to predict stock returns with time-varying risk premia”
We develop a penalized two-pass regression with time-varying factor loadings. The penalization in the first pass enforces sparsity for the time-variation drivers while also maintaining compatibility with the no-arbitrage restrictions by regularizing appropriate groups of coefficients. The second pass delivers risk premia estimates to predict equity excess returns. Our Monte Carlo results and our empirical results on a large cross-sectional data set of US individual stocks show that penalization without grouping can yield to nearly all estimated time-varying models violating the no-arbitrage restrictions. Moreover, our results demonstrate that the proposed method reduces the prediction errors compared to a penalized approach without appropriate grouping or a time-invariant factor model.
Friday , January 13th , 2023
Francesco VIOLANTE (ENSAE)
“Generalized autoregressive conditional betas: longitudinal feedback in multifactor asset pricing”
We propose a new class of observation driven models describing the joint dynamics of the time varying slopes in a system of conditionally heteroskedastic simultaneous multiple regressions. The model, dubbed Generalized Autoregressive Conditional Betas (GACB), introduces new and economically meaningful mechanisms of propagation of shocks, namely beta spillovers. The GACB can accommodate large dimensions (both regressors and regressands ), testing parametric longitudinal restrictions, introducing exogenous variables influencing betas, as well as the coexistence of constant and time varying betas.
We derive stationarity and uniform invertibility conditions and present beta and covariance tracking constraints. We propose a variety of computationally convenient quasi maximum likelihood estimators (parallel and sequential), and we assess their finite sample properties using extensive Monte Carlo experiments.
Finally, we use the GACB to illustrate the role of beta spillovers in the Fama French three factors asset pricing model.
iQuant Evenings
March, 22, 2022
Event held in French
Olivier de BANDT, Directeur de la Recherche à la Banque de France
“Les effets macroéconomiques du changement climatique”
Le réchauffement climatique a des effets économiques importants qui peuvent être divisés en deux catégories: les coûts directs et les coûts indirects. Les coûts directs incluent les dépenses liées à la réduction des émissions de gaz à effet de serre et à l’adaptation aux changements climatiques. Les coûts indirects incluent les impacts sur les industries et les secteurs économiques tels que l’agriculture, la pêche, les forêts et les infrastructures. Le réchauffement climatique peut également entraîner des perturbations économiques à travers les chaînes d’approvisionnement et les marchés financiers.
Olivier de BANDT est actuellement directeur de la Recherche à la Banque de France. Il a occupé différents postes de direction à la Banque de France (prévisions économiques, économie internationale) et à l’ACPR (études et analyses des risques). Il a publié de nombreux articles dans des revues académiques internationales dans les domaines de la macroéconomie, l’économie financière, l’économie de l’assurance. Il a enseigné comme professeur associé à l’Université de Paris-Nanterre. Il est titulaire d’un PhD du département d’économie de l’université de Chicago.