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Working Paper
Bank capital standards for market risk: a welfare analysis
We develop a model of commodity money and use it to analyze the following two questions motivated by issues in monetary history: What are the conditions under which Gresham's Law holds? And, what are the mechanics of a debasement (lowering the metallic content of coins)? The model contains light and heavy coins, imperfect information, and prices determined via bilateral bargaining. There are equilibria with neither, both, or only one type of coin in circulation. When both circulate, coins may trade by weight or by tale. We discuss the extent to which Gresham's Law holds in the various cases. ...
Working Paper
Financial distress and the role of capital contributions by the owner manager
This paper examines the implications of bankruptcy law for owner managed firms. These firms are typically (i) smaller, (ii) their value is closely tied to the skills of the owner manager, and (iii) the owner manager represents a feasible source of capital contributions if the firm is in financial distress. The terms of such capital infusions, codified as the new value exception (NVE) to the absolute priority rule (APR), has been the source of considerable controversy, both in terms of its existence, and the economic benefit, if any, that it provides. We show that when the owner manager cannot ...
Working Paper
Noisy trade disclosure and liquidity
Working Paper
Changes in trading activity following stock splits and their impact on volatility and the adverse information component of the bid-ask spread
This paper examines the changes in trading activity around stock splits, and its impact on both the volatility and the bid-ask spread. After a stock split, there is a significant increase in the volatility and the spread, even after controlling for the effects of microstructure biases like price discreteness and bid-ask bounce. The change in the number of trades is positively related to the change in total volatility, as well as to the temporary and permanent components of volatility. This suggests that the change in trading activity is associated with both informed and noise traders. The ...
Journal Article
Value at risk for a mixture of normal distributions: the use of quasi- Bayesian estimation techniques
This article proposes a methodology for measuring value at risk for fat-tailed asset return distributions. Simulation-based results indicate that this approach provides better estimates of risk than one based on the assumption that asset returns are normally distributed.
Conference Paper
Bank capital standards for market risk: a welfare analysis