Conference Agenda

 
 
Session Overview
Session
NBIM: Understanding the Long-Run Drivers of Asset Prices
Time:
Friday, 18/Aug/2023:
1:30pm - 3:00pm

Session Chair: Christian Heyerdahl-Larsen, BI Norwegian Business School
Location: Auditorium (floor 1)


Presentations
ID: 1189

Market Power in the Securities Lending Market

Shuaiyu Chen3, Ron Kaniel2, Christian Opp1

1University of Rochester & NBER; 2University of Rochester; 3Purdue University

Discussant: Nicolae Gârleanu (Olin School of Business)

We document the presence of market power in the equity securities lending market and evaluate its impact on different investor groups and valuations. Our analysis reveals high market concentration, non-competitive fees, and low inventory utilization in the cross-section of stocks. Motivated by this evidence, we develop and estimate a dynamic asymmetric-information model that sheds light on the benefits of this current market structure for both security lenders and short sellers. We find that lending fee income raises shares lenders' equity valuations by 1.5% for large-cap, low-fee stocks, by up to 25% for small-cap stocks, and by even more than 100% for nano-cap stocks. Our model further yields estimates of the distribution of alphas from shorting different segments of the cross-section of stocks, indicating that fees reduce short-sellers' profits by about 60%.

EFA2023_1189_NBIM_1_Market Power in the Securities Lending Market.pdf


ID: 1013

The Financial Premium

Jens Dick-Nielsen, Peter Feldhütter, David Lando

Copenhagen Business School, Denmark

Discussant: Jack Bao (University of Delaware)

We show that bonds issued by financial firms have higher spreads than bonds issued by industrial firms with the same rating and we denote this difference the financial premium. During the period 1987-2020 the premium was on average 43bps in the U.S. corresponding to a 31% higher spread and the premium is higher for lower ratings and in financial crises. Furthermore, the premium relates to measures of systemic risk and predicts economic activity. We derive a model that explains the empirical results: banks hold a diversified portfolio of corporate bonds (loans) and bank bonds therefore reflect more systematic risk than the individual corporate bonds.

EFA2023_1013_NBIM_2_The Financial Premium.pdf


ID: 515

Asset Demand of U.S. Households

Xavier Gabaix2, Ralph Koijen1, Federico Mainardi1, Sangmin Oh1, Motohiro Yogo3

1Chicago Booth, United States of America; 2Harvard University; 3Princeton University

Discussant: Jens Kvaerner (Tilburg University)

We use new monthly security-level data on portfolio holdings, flows, and returns of U.S. households to understand asset demand across multiple asset classes. Our data cover a wide range of households across the wealth distribution – including ultra-high-net-worth (UHNW) households – and holdings in many asset classes, including public and private assets. We first develop a descriptive model to summarize households’ rebalancing behavior. We find that less wealthy households rebalance from liquid risky assets to cash during market downturns, while UHNW households tend to purchase risky assets during those periods and thus stabilize market fluctuations. This pattern is particularly pronounced for U.S. equities. Across risky asset classes, three factors explain most of the variation in portfolio rebalancing and those factors target the long-term equity premium, the credit premium, and the premium on municipal bonds. Next, we develop a new framework to estimate demand curves across asset classes. While nesting traditional models as a special case, our framework allows for a muted response of asset demand to fluctuations in asset prices and easily extends to account for inertia. Our new estimator of asset demand curves exploits variation in second moments of returns and portfolio rebalancing, and can even be used when only a fraction of all holdings in a market can be observed. Our preliminary results indicate that asset demand elasticities are smaller than those implied by standard theories, vary significantly across the wealth distribution, and are negative for various groups, pointing to positive feedback trading. In sum, we think that our framework and data paint a coherent picture of U.S. households that captures, quite uniquely, their rebalancing behavior across the wealth distribution and across broad asset classes.

EFA2023_515_NBIM_3_Asset Demand of US Households.pdf