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Cambridge Finance coordinates the programmes of research and study in all areas of finance across the University of Cambridge. Its members are grouped into seven research centres: 3CL, CCFin, CFR, CIMF, JBSF, REF, CFH and CEAM.
Updated: 1 hour 43 min ago

Thu 16 May 12:30: Money Management and Real Investment

Wed, 08/05/2024 - 09:06
Money Management and Real Investment

We propose and analyze an equilibrium model of money management in which the asset allocation decisions of money managers affect the production decisions of firms. The model produces two main results. First, comparing the performance of money managers to that of the overall market portfolio becomes less appropriate as investors (endogenously) choose to delegate more of their money to them. Indeed, as money managers control more money, their holdings get closer to the market portfolio, making it less likely that they outperform it. Second, although money managers may be outperformed by the market portfolio after their fees are taken into account, it is optimal for investors to hire their services. This is because money managers prompt a more efficient allocation of capital, making the economy more productive and firms more valuable in the process. In fact, as we show, the presence of money managers can improve the welfare of all investors, whether or not these investors choose to delegate their investment decisions to money managers.

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Thu 02 May 13:00: Policy Portfolio for Banks: Deposit Insurance and Ex-post Liquidity Injection

Thu, 25/04/2024 - 14:38
Policy Portfolio for Banks: Deposit Insurance and Ex-post Liquidity Injection

Banking crises pose significant threats to our economy, leading to the implementation of policy measures such as deposit insurance and liquidity injection to strengthen financial stability and optimize resource allocation efficiency. This paper investigates the dynamic interplay between deposit insurance and liquidity injection. Facing uncertainty regarding bank health and depositor liquidity shocks, policymakers decide liquidity injection based on withdrawals. While higher deposit insurance coverage can mitigate panic runs, it may undermine the effectiveness of liquidity injections. We demonstrate that liquidity injection overshadows deposit insurance. Consequently, the optimal policy portfolio entails zero deposit insurance, enhancing resource allocation efficiency but leading to more panic runs.

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Thu 02 May 13:00: Policy Portfolio for Banks: Deposit Insurance and Ex-post Liquidity Injection

Tue, 09/04/2024 - 09:47
Policy Portfolio for Banks: Deposit Insurance and Ex-post Liquidity Injection

Depositors may withdraw from banks due to liquidity needs, strategic concerns, or weak bank fundamentals. This study delves into the dynamic relationship between deposit insurance and liquidity provision. Amid uncertainty over bank health and depositor liquidity demands, policymakers determine liquidity injections based on early withdrawals. While expanding deposit insurance can deter panic runs, it may dilute the efficacy of liquidity injections, particularly by bolstering banks with weak fundamentals. The optimal policy involves a balanced portfolio that integrates both tools, strategically allowing more panic runs to effectively direct liquidity injections into viable banks.

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Thu 16 May 12:30: Title to be confirmed

Wed, 27/03/2024 - 14:12
Title to be confirmed

Abstract not available

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Thu 16 May 12:30: The Legal Framework for Venture Capital in Ukraine

Wed, 27/03/2024 - 09:36
The Legal Framework for Venture Capital in Ukraine

With reference to the role venture capital (VC) can play in Ukraine’s post-war reconstruction, we explore how far Ukraine’s legal framework supports VC funds and start ups. We use a multi-methods approach, combining a quantitative (‘leximetric’) review of the operation of legal norms, with qualitative evidence based on interviews with industry participants. In the leximetric part of our study, we observe a recent strengthening of formal legal protection for shareholders and creditors, of the kind which is consistent with VC, and brings Ukrainian law into line with the norms for other developed countries. Our interviews suggest that Ukraine-based funds and start ups are able to use overseas legal systems (mainly Delaware law and English law) to structure entities and transactions, and that this can be important for maintaining investor confidence. Reliance on foreign law may not, however, be a long-term solution if the aim is to build an indigenous VC ecosystem. The example of other countries in East Central Europe, including Estonia and Romania, suggests that civil law legal origin need not be an obstacle to the use of domestic laws to support VC. Our interviews also stress the importance of reducing corruption and building trust in public institutions as elements in Ukraine’s sustainable development.

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Thu 02 May 13:00: Title to be confirmed

Mon, 25/03/2024 - 08:57
Title to be confirmed

Abstract not available

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Thu 13 Jun 13:00: Estimating the Private Value of Financial Statement Statistics; the abstract is below. I hope to have a revised version ready closer to the actual presentation date.

Mon, 04/03/2024 - 14:25
Estimating the Private Value of Financial Statement Statistics; the abstract is below. I hope to have a revised version ready closer to the actual presentation date.

We develop a method for estimating the private value of knowing the future realization of some financial statistic and then apply the measure to the familiar ratios arising from the Dupont decomposition of return on equity. The estimation is grounded in the standard rational expectations model, adapted to accommodate relative risk aversion, and produces an investor’s willingness to pay for the signal. The method can accommodate different levels of investable wealth, multiple assets, and any information system that produces signals about those assets. To illustrate the use of this measure, we show that knowing next year’s return on equity, given that the investor already knows the current value, is worth six times more than knowing the value of next year’s sales growth. And, as predicted by the Dupont model, we find the value of knowing next year’s operating asset turnover depends crucially on the level of the operating profit margin. Finally, we show that knowing next year’s leverage is practically worthless. Given that investors face trade-offs when deciding where to expend effort in financial statement analysis, these estimates can help them to know where to allocate their time.

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Thu 16 May 12:30: Title to be confirmed

Mon, 04/03/2024 - 14:09
Title to be confirmed

Abstract not available

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