Search Results

SORT BY: PREVIOUS / NEXT
Author:Davis, Douglas 

Working Paper
Fixed Prices and Regulatory Discretion as Triggers for Contingent Capital Conversion: An Experimental Examination

An unresolved issue regarding the implementation of 'contingent capital' bonds regards identifying the best mechanism for triggering the conversion of debt into equity. This paper reports a laboratory experiment that builds on previous work to evaluate the relative desirability of two leading candidate mechanisms: a price informed regulator and a mechanistic fixed-price trigger. We find that the conversion rule in effect determines the desirability of these two mechanisms. When the conversion increases incumbent equity value, a fixed trigger is preferable, but when the conversion decreases ...
Working Paper , Paper 15-2

Working Paper
Liquidity Requirements and the Interbank Loan Market: An Experimental Investigation

We develop a stylized interbank market environment and use it to evaluate with experimental methods the effects of liquidity requirements. Baseline and liquidity-regulated regimes are analyzed in a simple shock environment, which features a single idiosyncratic shock, and in a compound shock environment, in which the idiosyncratic shock is followed by a randomly occurring second-stage shock. Interbank trading of the illiquid asset follows each shock. In the simple shock environment, we find that liquidity regulations reduce the incidence of bankruptcies, but at a large loss of investment ...
Working Papers (Old Series) , Paper 1810

Working Paper
An experimental analysis of contingent capital triggering mechanisms

This paper reports an experiment that evaluates three regimes for triggering the conversion of contingent capital bonds into equity: (a) a ?regulator? regime, where socially motivated regulators make conversion decisions based on observed prices, (b) a ?fixed trigger? regime where a price threshold triggers a mandatory conversion, and (c) a ?prediction market? regime where we supplement the regulator?s information set with the results of a prediction market that elicits traders? perceived likelihood of a conversion. Consistent with theory, we observe informational and allocative ...
Working Paper , Paper 11-01

Working Paper
Playing with Money

Experimental studies in monetary economics usually study infinite horizon models. Yet, the time constraints of the laboratory sessions in which these models are conducted create finite horizons that imply monetary equilibria cannot exist. Moreover, laboratory subjects do not treat the probabilistic termination rule typically used in a manner consistent with the discount factor that the rule is intended to replace. Thus, it is unclear whether these experiments evaluate subjects' use of money to ameliorate trading frictions as an equilibrium phenomenon, their inability to understand backward ...
Working Paper , Paper 19-2

Journal Article
Using Economic Experiments to Improve Contingent Convertible Capital Bonds

This Commentary describes experiments conducted to study alternative designs for a new type of financial security, CoCo bonds, that is being used in some European countries to manage the risk of financial crises. CoCo bonds are bank-issued debt that converts to equity when a trigger is breached. The conversion into equity serves to recapitalize a bank during financial distress, precisely when it is hardest to raise capital. The types of trigger used for all CoCos issued thus far are defined in terms of book capital. The experiments we conducted explore the effects of using triggers that are ...
Economic Commentary , Volume 2018 , Issue 02 , Pages 6

FILTER BY year

FILTER BY Content Type

FILTER BY Author

Prescott, Edward Simpson 4 items

Korenok, Oleg 3 items

Lightle, John 1 items

Norman, Peter 1 items

Sultanum, Bruno 1 items

show more (2)

FILTER BY Jel Classification

C9 1 items

C92 1 items

G14 1 items

G21 1 items

G28 1 items

PREVIOUS / NEXT