All seminars are held in 1011 Evans Hall at UC Berkeley, unless otherwise notified.

Upcoming seminar

Tuesday, February 19, 2019 11:00 AM to 12:30 PM

Saad Mouti, UC Berkeley: Sustainable Responsible Investing and the Cross-Section of Return and Risk

The identification of factors that predict the cross-section of stock returns has been a focus of asset pricing theory for decades. We address this challenging problem for both equity performance and risk, the latter through the maximum drawdown measure. We test a variety of regression-based models used in the field of supervised learning including penalized linear regression, tree-based models, and neural networks. Using empirical data in the US market from January 1980 to June 2018, we find that a number of firm characteristics succeed in explaining the cross-sectional variation of active returns and maximum drawdown, and that the latter has substantially better predictability. Non-linear models materially add to the predictive power of linear models. Finally, environmental, social, and governance impact enhances predictive power for non-linear models when the number of variables is reduced.

All seminars


Tuesday, January 22, 2019 11:00 AM to 12:30 PM


Tuesday, January 29, 2019 11:00 AM to 12:30 PM


Tuesday, February 5, 2019 11:00 AM to 12:30 PM
Rama Cont, University of Oxford: Endogenous risk, indirect contagion and systemic risk
Deleveraging by financial institutions in response to losses may lead to contagion of losses across institutions with common asset holdings. Unlike direct contagion via counterparty exposures, this channel of contagion -which we call indirect contagion- is mediated through market prices and does not require bilateral exposures or relations. We show nevertheless that indirect contagion in the financial system may be modeled as a contagion process on an auxiliary network defined in terms of 'liquidity weighted portfolio overlaps' and we study various properties of this network using data from EU banks. Exposure to price-mediated contagion leads to the concept of indirect exposure to an asset class, as a consequence of which the risk exposure of a portfolio strongly depends on the asset holdings of large institutions in the network. We propose a systemic stress testing methodology for evaluating this risk exposure and construct a simple indicator of bank-level exposure to indirect contagion – the Indirect Contagion Index – based on the analysis of liquidity-weighted overlaps across bank portfolios. This indicator is shown to be strongly correlated with bank losses due to deleveraging and may be used to quantify the contribution of a financial institution to price-mediated contagion.

 

Joint work with  Eric Schaanning (European Systemic Risk Board).

 

References:
[1] Rama Cont, Eric F Schaanning (2016) Fire Sales, Indirect Contagion and Systemic Stress Testing. https://ssrn.com/abstract=2541114
[2] Rama Cont, Eric F Schaanning (2017) Monitoring Indirect Contagion.  https://ssrn.com/abstract=3195174


Tuesday, February 12, 2019 11:00 AM to 12:30 PM
Alex Papanicolaou, Intelligent Financial Machines: Computation of Optimal Conditional Expected Drawdown Portfolios

We introduce two approaches to computing and minimizing the risk measure Conditional Expected Drawdown (CED) of Goldberg and Mahmoud (2016). One approach is based on a continuous-time formulation yielding a partial differential equation (PDE) solution to computing and minimizing CED while another is a sampling based approach utilizing a linear program (LP) for minimizing CED.



Tuesday, February 19, 2019 11:00 AM to 12:30 PM
Saad Mouti, UC Berkeley: Sustainable Responsible Investing and the Cross-Section of Return and Risk

The identification of factors that predict the cross-section of stock returns has been a focus of asset pricing theory for decades. We address this challenging problem for both equity performance and risk, the latter through the maximum drawdown measure. We test a variety of regression-based models used in the field of supervised learning including penalized linear regression, tree-based models, and neural networks. Using empirical data in the US market from January 1980 to June 2018, we find that a number of firm characteristics succeed in explaining the cross-sectional variation of active returns and maximum drawdown, and that the latter has substantially better predictability. Non-linear models materially add to the predictive power of linear models. Finally, environmental, social, and governance impact enhances predictive power for non-linear models when the number of variables is reduced.



Tuesday, February 26, 2019 11:00 AM to 12:30 PM
Samim Ghamami, Goldman Sachs and UC Berkeley Center for Risk Management Research: Collateralized Networks

We study the spread of losses and defaults through financial networks focusing on two important elements of regulatory reforms: collateral requirements and bankruptcy stay rules in over-the-counter (OTC) markets. Under "segregated" collateral requirements, one firm can benefit from the failure of another, the failure frees the committed collateral of the surviving firm giving it additional resources to make other payments. In OTC derivatives markets, similarly, one firm may obtain additional resources upon the failure of another if it terminates its in the money derivatives with the failed entity. Studying contagion in the presence of this real world phenomenon becomes challenging. Our proposed model deviates from the existing network models to capture collateral and accelerated contract termination payments. The model also incorporates fire sales externalities when collateral is held in illiquid assets. We show that asset fire sales increase the risk of contagion if illiquid collateral is seized and sold immediately upon defaults. We also analyze the impact of different bankruptcy stay rules on contagion. Some of our results contrast with the post-crisis stay rules. For instance, we show that when banks are not highly leveraged in terms of their OTC derivatives transactions, which is now the case due to the impact of regulatory reforms, symmetric contract termination in the absence of automatic stays can reduce the risk of contagion.



Tuesday, March 5, 2019 11:00 AM to 12:30 PM
Ola Mahmoud, University of Zurich: How elementary is diversification?

Diversification is a fundamental concept in financial economics, risk management, and decision theory. From a broad perspective, it conveys the idea of introducing variety to a set of objects. Today, there is general consensus that some form of diversification is beneficial in asset allocation, however its definition is context-dependent and there is no consensus on a widely accepted, mathematically concise and economically sound notion of diversification. Indeed, there is an ongoing debate about what the “best” level of diversification should be. There is also a recent trend of evaluating certain diversifying heuristics as being “anomalous” and “irrational”. In this talk, I shall approach the notion of diversification from a foundational perspective by asking how elementary it really is. I take the view that diversification is a behavioural choice heuristic and an evolutionary cognitive adaptation that is selectively advantageous under many economic and financial circumstances. The talk will dig deeper into the roots of this paradigm; first, through an experimental study on children that looks into whether they would diversify in a sequence of gambles aimed at replicating typical portfolio choice scenarios; then by formulating an evolutionary theory of diversification.



Tuesday, March 12, 2019 11:00 AM to 12:30 PM


Tuesday, March 19, 2019 11:00 AM to 12:30 PM


Tuesday, April 2, 2019 11:00 AM to 12:30 PM


Tuesday, April 9, 2019 11:00 AM to 12:30 PM


Tuesday, April 16, 2019 11:00 AM to 12:30 PM


Tuesday, April 23, 2019 11:00 AM to 12:30 PM


Tuesday, April 30, 2019 11:00 AM to 12:30 PM