Spring 2024

SEM217: Baeho Kim, Korea University: Long-History PCA under Dynamic Factor Model with Weaker Loadings (Joint work with Robert M. Anderson and Donghan Ryu)

Tuesday, April 23rd @ 11:00-12:30 PM, 648 Evans Hall and Zoom


The accurate estimation of the covariance matrix and its inverse (= precision) matrix of asset returns significantly shapes the range of admissible portfolio compositions and the potential magnitude of associated losses, given the portfolio manager's predetermined risk budget. In this study, we propose Long-History PCA (LH-PCA), which uses longer data histories (T_L), such as 1500 trading days or six years, to predict daily portfolio risks. We show that LH-PCA...

Spring 2024

SEM217: Markus Pelger, Stanford: Shrinking the Term Structure

Tuesday, April 16th @ 11:00-12:30 PM, 648 Evans Hall and Zoom

We propose a new framework to explain the factor structure in the full cross section of Treasury bond returns. Our method unifies non-parametric curve estimation with cross-sectional factor modeling. We identify smoothness as a fundamental principle of the term structure of returns. This implies factors that are investable portfolios and correspond to unique spanning basis functions with decreasing order of smoothness. These reflect and thus explain the slope and curvature shapes frequently encountered in PCA. In a...

SEM217: Nick Gunther, Infima: NLP-based Information Extraction Applied to MBS Offering Documents

Tuesday, April 30th @ 11:00-12:30 PM, 648 Evans Hall and Zoom

Large Language Models ("LLMs") have impressed researchers and observers with their success at classification, translation, text generation and other standard NLP tasks. Starting with word2vec in 2013 and accelerating to contemporary transformer models such as BERT, researchers have continued to discover exciting new applications and improve existing ones.

Because financial data is largely numerical and NLP’s...

SEM217: Sunil Wahal, Arizona State University: R&D, Innovation, and the Stock Market

Tuesday, April 2nd @ 11:00-12:30 PM, 648 Evans Hall and Zoom

We investigate the relation between inventive input (R&D), inventive output (the economic value of patents, EVP), firm-level profitability and asset growth, and stock returns. Current R&D and EVP forecast future profitability. Neither forecast future asset growth. Factor models motivated by q-theory and the dividend discount model fail to price R&D and EVP correctly, leaving large alphas on the table...

SEM217: Jaeyeon Lee, UC Berkeley Haas: Agengy CMBS: The Rise of ARM Share

Tuesday, March 19th @ 11:00-12:30 PM, 648 Evans Hall and Zoom

This paper investigates the increase in adjustable-rate mortgage (ARM) credit volume shares in the government-sponsored enterprise(GSE) commercial mortgage-backed securities(CMBS) market since the global financial crisis. We find evidence of borrowers exploiting prepayment options embedded in ARM contracts during low policy rate periods, which coincide with upside collateral value cycle. Moreover, we find that ARM...

SEM217: Alicia Montoya & Thomas Phillips, Swiss Re: Quantum Cities™ - Data-centric Approaches for Resilient, Sustainable Cities

Tuesday, February 27th @ 11:00-12:30 PM, via Zoom

More than 56% of today's global population lives in cities, set to reach 70% by 2050. 80% of global GDP is generated in cities. Cities consume two-thirds of global energy and account for more than 70% of greenhouse gas emissions.Much of this urban growth is happening in densely populated and rapidly urbanising river plains and coastlines...

SEM217: Samim Ghamimi, SEC DERA

Tuesday, March 12th @ 11:00-12:30 PM, 648 Evans Hall and Zoom

SEM217: Shachar Kariv, UC Berkeley. Ever Since Allais and Ellsberg

Tuesday, March 5th @ 11:00-12:30 PM, 648 Evans Hall and Zoom

The Allais critique of expected utility theory (EUT) has led to the development of theories of choice under risk that relax the independence axiom, but which adhere to the conventional axioms of ordering and monotonicity. Unlike many existing laboratory experiments designed to test independence, our experiment systematically tests the entire set of axioms, providing much richer evidence against which EUT can be judged. Our within-subjects analysis is nonparametric, using only information about revealed preference relations...

SEM217: Aaron Yoon, Northwestern Kellogg: Return on Environmental Investments: First Evidence from Chinese Regulatory Filings

Tuesday, February 20th @ 11:00-12:30 PM via Zoom

From ESG ratings and current public disclosures on ESG in the U.S., investors cannot disentangle how much firms invest in ESG and the associated ESG performance. To overcome this problem, we use a setting in China, in which regulators mandate firms to disclose the actual amount of environmental investment in annual reports. We examine whether and how environmental investments relate to emission reductions, and how the market...