Thu 16 May 12:30: 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.
- Speaker: Simon Gervais (Duke)
- Thursday 16 May 2024, 12:30-13:30
- Venue: 109 - Castle Teaching Room.
- Series: Cambridge Finance Workshop Series; organiser: Cerf Admin.
Thu 02 May 13:00: 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.
- Speaker: Lin Shen (Insead)
- Thursday 02 May 2024, 13:00-14:00
- Venue: W2.02.
- Series: Cambridge Finance Workshop Series; organiser: Cerf Admin.
Thu 02 May 13:00: 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.
- Speaker: Lin Shen (Insead)
- Thursday 02 May 2024, 13:00-14:00
- Venue: W2.02.
- Series: Cambridge Finance Workshop Series; organiser: Cerf Admin.