International Risk Management Conference 2017

“Assessing 10 Years of Changes in the Financial Markets: How will the Future be Impacted?”

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Supporting Sponsor

IRMC2017 International Risk Management Conference Partner

Florence, June 12 - 14, 2017 Monday morning, June 12 Room D6.018 - Ground Floor Time 11.15-13.15 2 of Banking and Finance. of Banking Universityprofessional Institute, Florence workshop,School with the European jointly organized a halfdaysconference sessionsanda including4keynote featured sessions,4parallel plenary from various academic disciplines and professionals for atwo and leading experts bring together national Risk Management Conference inFlorence,Italy, June12-14,2017.Theconference will invite youto jointhe10th Celebrative ADEIMF EditionoftheInter and Udine of University the University Institute, with theEuropean of Florence,NYUSternSalomon Center)incollaboration organizers(University After inJerusalem,Israel,theIRMCpermanent theninthsuccessfuledition “Assessing 10Years of ChangesintheFinancialMarkets: Social ScienceCampus-BuildingD6,GroundFloor Social How willtheFuture Impacted?” be Via dellePandette, 9-50127Florence,Italy Florence School of Banking andFinance ofBanking Florence School 50014 SanDomenico,Fiesole-Florence The Risk Banking and FinanceSociety The RiskBanking European University Institute European European University Institute European Workshop HostInstitution Conference Management www.therisksociety.com [email protected] Social ScienceCampus Social University ofFlorence University ofFlorence Tel +390552759720 Conference Venue Via deiRoccettni,9 Workshop Venue Host Institution Badia Fiesolana Badia -

William Ziemba Zvi Wiener SubrahmanyamMarti Anthony Saunders Wim Schoutens Francesco Saita Oliviero Roggi Andrea Resti Rijken Herbert Loriana Pelizzon Stefano Miani Mario Massari Elisa Luciano Małgorzata Iwanicz-Drozdowska Dan Galai Franco Fiordelisi Riccardo DeLisa Maurizio Dallocchio Alessandro Carretta Lorenzo Caprio Menachem Brenner Zvi Bodie Marco Bigelli Giorgio Bertinetti Annarita Bacinello Torben J. Andersen Viral Acharya Edward Altman Chairman: MenachemBrenner Permanent ScientificCommittee: Oliviero Roggi Academic Coordination: Zvi Wiener Dan Galai Cosimo Pacciani Małgorzata Iwanicz-Drozdowska Torben JuulAndersen Riccardo DeLisa Rijken Herbert Giorgio Bertinetti Maurizio Dallocchio Conference Consultants: Oliviero Roggi Edward Altman Permanent Conference Chairmen: IRMC 2017OrganizingCommitees University ofBritishColumbia Hebrew University ofJerusalem New York University -Stern New York University -Stern University ofLeuven University Bocconi University ofFlorence University Bocconi VU ofAmsterdam University ofVenice University ofUdine University Bocconi University ofTurin Warsaw ofEconomics School The Hebrew University ofJerusalem University ofRomeTre University ofCagliari University Bocconi University ofRome-Tor Vergata University Cattolica New York Univerity -Stern University Boston University ofBologna University ofVenice University ofTrieste BusinessSchool Copenhagen New York University -Stern New York University -Stern New York University -Stern University ofFlorence The Hebrew University ofJerusalem The Hebrew University ofJerusalem StabilityMechanism European Warsaw ofEconomics School BusinessSchool Copenhagen University ofCagliariandFITD VU University Amsterdam University ofVenice University Bocconi University ofFlorence NYU Stern

12 June morning, Monday Room D6.018 - Ground Floor Time 11.15-13.15 Time Floor Ground - D6.018 Room 4 5

The conference will feature presentations from well-known and distinguished academics, IRMC conference Mission practitioners and regulators including: Monday morning, June 12 The mission of the conference is to provide a professional forum to discuss recent advances in Edward Altman NYU Stern School of Business risk management. Davide Alfonsi Intesa Sanpaolo IRMC aims to present the latest research from the major schools of thought in finance, economics Linda Allen City University of New York and banking. Giovanni Barone-Adesi Swiss Finance Institute Menachem Brenner NYU Stern School of Business Francesca Campolongo Joint Research Centre - European Commission Santiago Carbo-Valverde Bangor Business School and Editor-in-Chief of the Journal of Financial Management, Markets and Institutions Michel Dacorogna DEAR Consulting Federico Galizia Inter-American Development Bank Michael Gordy Federal Reserve and Co-Editor-in-Chief of the Journal of Credit Risk Our perspective about risk Giuseppe Lusignani University of Bologna and Prometeia Massimo Marchesi European Commission The Conference’s objective is to present the latest theories and tools developed in the risk Mario Nava European Commission management field. Since risk is a multifaceted concept, the Conference treats it from many Cosimo Pacciani European Stability Mechanism different viewpoints. Bruna Szego Bank of Italy NYU Stern School of Business Time 11.15-13.15 D6.018 - Ground Floor Room Banking addresses the issue of financial stability and of setting up appropriate risk capital David Yermack S&P Global Market Intelligence requirements. Moreover, research in this field includes risk measurement in the banking sector Cristiano Zazzara William Ziemba University of British Columbia and investigates the impact of risk on portfolio selection and performance. Corporate Finance investigates the role of risk in firms’ value maximization and studies risk mitigation strategies. The parallel sessions are organized around the following headings: Quantitative Risk Management specifically addresses risk measurement, with several applications in financial and non-financial companies. A1. Banking and financial regulation C1. Banking and financial intermediation A2. Systemic risk C2. Bond markets A3. Banking and risk taking C3. Quantitative methods in risk management A4. Risk management in financial markets C4. Banking system and Basel III A5. Credit risk management and markets C5. Financial markets and derivatives A6. Corporate governance in banking C6. Quantitative methods in risk management Room D6.018 - Ground Floor Time 11.15-13.15

B1. Liquidity in banking and financial markets D1. Corporate finance and financial markets B2. Banking and financial intermediation D2. Banking and risk taking B3. Corporate financial and financial markets D3. Risk management in financial markets Letter from the Permanent Organizers B4. Macro risks, monetary policy and interest rate risk D4. Banking system and financial regulation B5. Corporate finance and risk management D5. Credit risk and PD modeling Welcome to the 10th celebrative edition of International Risk Management Conference B6. Behavioral finance and FinTech D6. Banking system and financial regulation 2017. We are delighted that you decided to join us this year in Florence and participate in numerous presentations and discussions about the topical conference theme: “Assessing The permanent coordinating institutions, the University of Florence and NYU Stern’s Salomon Center, 10 Years of Changes in the Financial Markets: How will the Future be Impacted?" The together with this conference’s co-organizers, the European University Institute and the University of conference features a large number of leading international experts who will speak about Udine, look forward to welcoming the guests to IRMC 2017 activities, which also include a gala event the conference theme and will challenge us in a series of keynote speeches and featured that hopefully will create nice memories of a wonderful experience in Florence for all. lectures. It also brings together dedicated researchers from leading academic, major corporate and financial institutions in both scholarly sessions and professional workshops With best wishes from the permanent Conference Coordinators: and a round table discussion on topics of current practical relevance. The Professional Workshop will take place on June 13, featuring prominent speakers dealing on the subject of prospective financial regulation. It will be followed by a round table Monday morning, June 12 discussion among distinguished executives of Italian and European financial institutions that outline practical responses to the challenging economic conditions. Edward Altman Oliviero Roggi NYU Stern University of Florence 6 Summary 7

Conference Schedule Details 8 Parallel Sessions Schedule 12 Monday morning, June 12 IRMC Previous Editions 16 Conference Keynotes and Speakers Bios 19 Workshop Program 24 Workshop Keynotes and Speakers Bios 25 Achievements and Publication Opportunities 29 Parallel Session Abstracts 35 A1. Banking and financial regulation 36 A2. Systemic risk 38 A3. Banking and risk taking 40 A4. Risk management in financial markets 42 The Risk, Banking and Finance Society A5. Credit risk management and markets 44

A6. Corporate governance in banking 46 Time 11.15-13.15 D6.018 - Ground Floor Room The main objective of The Risk Banking and Finance Society is to promote the creation and exchange of knowledge about risk, banking and finance by establishing and developing a com- B1. Liquidity in banking and financial markets 48 munity of academics and practitioners interested in these subjects. B2. Banking and financial intermediation 50 The Society promotes and carries out theoretical and applied research in the economics and B3. Corporate finance and financial markets 52 finance field, specifically regarding the identification, assessment and treatment of corporate, bank, national and systematic risks. It organizes and promotes national and international B4. Macro risks, monetary policy and interest rate risk 54 conferences and workshops within its scope of advancing knowledge on financial subjects. B5. Corporate finance and risk management 56 In particular, the main task of the Society is to act as permanent conference manager for the B6. Behavioral finance and FinTech 58 “International Risk Management Conference”. It also offers the “Beautiful Minds in Finance” Workshop Series and other similar events. C1. Banking and financial intermediation 60 The Society invites individuals interested in understanding risks and other financial topics to join C2. Bond markets 62 Room D6.018 - Ground Floor Time 11.15-13.15 the community as “Individual Associates”. In addition to individuals, corporations and institutions C3. Quantitative methods in risk management 64 may also enjoy membership of the association as “Corporate” or “Supporting Associates”. Members contribute to the achievement of Society’s objectives and enjoy the benefits of the C4. Banking system and Basel III 66 participating in a community of scholars, practitioners and policymakers. C5. Financial markets and derivatives 68 The achievement of the objectives of this non-profit organization will be guided by the General C6. Quantitative methods in risk management 70 Assembly of Associates, their elected Board and the Society’s President who acts as legal representative. In addition, a Scientific Committee and Board of Guarantors are appointed D1. Corporate finance and financial markets 72 according to the association charter. D2. Banking and risk taking 74 The Risk, Banking and Finance Society was established in December 2010 under the Italian and D3. Risk management in financial markets 76 European law. D4. Banking system and financial regulation 78 Founder President and Legal Representative: Oliviero Roggi D5. Credit risk and PD modeling 80 Website: www.therisksociety.com D6. Banking system and financial regulation 82 Email: [email protected] Poster Session Abstracts 85 Social Event Information 96

Monday morning, June 12 Conference Venues 97 Conference Organizers and Partners 98 Workshop Co-Coordination 102 8 Conference Schedule Details Conference Schedule Details 9

Monday June 12, 2017 Tuesday June 13, 2017 Monday morning, June 12 Time Event Location Time Event Location

08.00-09.00 Registration 09.00-11.00 Parallel session C University of University of Florence 09.00-09.05 Greetings Florence 11.00-11.15 Coffee break Building D6 Building D6 Ground Floor 11.15-12.45 Plenary session 3 Chairman: Menachem Brenner 09.05-09.15 Opening Remarks and Introduction Ground Floor Edward Altman NYU Stern Via delle Luigi Dei University of Florence - Dean “The Evolution of the Altman Z-Score Model Via delle Pandette, 9 Oliviero Roggi University of Florence - Conference Chairman and its Applications in Financial Markets” Pandette, 9 Florence Michael Gordy Federal Reserve Florence 09.15-11.00 Plenary session 1 Chairman: Oliviero Roggi “Spectral backtests of forecast distributions with application

to risk management” Linda Allen City University of New York Q&A “Do International Banks Engage in Insider Trading?”

Cristiano Zazzara S&P Global Market Intelligence 12.45-13.45 Lunch “Systemic Risk in the Financial System: Capital Shortfalls

13.45 Shuttle Bus to the European University Institute Institute, Time 11.15-13.15 D6.018 - Ground Floor Room under Brexit, the US elections, and the Italian Referendum” Badia 14.45 - 18.15 Practitioners' Workshop on Financial Markets and Institutions Q&A Fiesolana “The Risk Management and Financial Regulation Nexus” Sala refettorio 11.00-11.15 Coffee break 14.45-15.00 Welcoming remarks and introduction Elena Carletti Bocconi University and Florence School of Banking and Finance Via dei 11.15-13.15 Parallel session A Building D6 Roccettini, 9 Ground Floor 15.00-16.15 Keynote speeches Chair: Elena Carletti 50014 San 13.15-14.15 Lunch Mario Nava European Commission Domenico, “Financing Growth in Europe: management of risk and efficient Fiesole, 14.15-16.20 Parallel session B Building D6 allocation of resources by the European Financial Sector” Florence Ground Floor David Yermack NYU Stern Room D6.018 - Ground Floor Time 11.15-13.15 16.20-16.40 Coffee break “Risk in the Era of FinTech” Q&A 16.40-18.30 Plenary session 2 Chairman: Zvi Wiener 16.15-16.30 Coffee break Menachem Brenner NYU Stern “Volatility and Ambiguity” 16.30-18.00 Round table

Chair and Moderator Cosimo Pacciani European Stability Mechanism Giovanni Barone-Adesi Swiss Finance Institute, University of Lugano Giuseppe Lusignani University of Bologna and Prometeia “S&P 500 Index, an Option Implied Risk Analysis” Davide Alfonsi Intesa Sanpaolo William Ziemba University of British Columbia Francesca Campolongo JRC - European Commission “Prediction Models for Large and Small Stock Market Crashes” Michel Dacorogna DEAR Consulting Bruna Szego Bank of Italy Q&A Q&A Free time 18.00-18.15 Closing remarks Edward Altman and Oliviero Roggi

18.20 Shuttle Bus to Antinori Winery

Monday morning, June 12 19.00 Guided tour of Antinori Wine Cellar 20.15 Gala dinner at “Rinuccio 1180” 10 Conference Schedule Details 11

Wednesday June 14, 2017 Monday morning, June 12 Time Event Location

08.30-10.35 Parallel session D University of Florence 10.35-10.50 Coffee break Building D6 Ground Floor 10.35-13.15 Plenary session 4 Via delle ADEIMF Special Session Pandette, 9 “New Frontiers in Financial Institutions, Risk and Profitability” Florence Greetings from Fondazione Cassa di Risparmio di Firenze

ADEIMF Special Session Introduction Rossella Locatelli University of Insubria and ADEIMF President Giampaolo Gabbi University of Siena Stefano Miani University of Udine

Oliviero Roggi University of Florence Time 11.15-13.15 D6.018 - Ground Floor Room

10.50-13.15 Santiago Carbo-Valverde Bangor Business School “Fintech and financial digitalisation: risks and regulation”

Massimo Marchesi European Commission “NPL: a European Perspective”

Federico Galizia Inter-American Development Bank “Expanding Equity Finance”

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INTERNATIONAL RISK MANAGEMENT CONFERENCE 2012 Global Standards for Risk Measurement, Management and Regulation Rome, Italy, June 18th - 19th, 2012 Host institution: Pontificia Università Lateranense Chairmen: Edward Altman,Oliviero Roggi, Riccardo De Lisa and Roberto Moretti Number of attendees: 232 Papers submitted: 115

INTERNATIONAL RISK MANAGEMENT CONFERENCE 2008 INTERNATIONAL RISK MANAGEMENT CONFERENCE 2013 Credit and Financial Risk Management: 40 years after the Altman Z-score model Enduring Financial Stability. An interdisciplinary perspective on today’s Risk Management Contemporary Challenges for Risk Management and Governance Florence, Italy, June 12th-14th, 2008 Copenhagen, Denmark, June 24th -25th, 2013 Host institution: University of Florence Host institution: Copenhagen Business School Chairmen: Edward Altman and Oliviero Roggi Chairmen: Edward Altman, Oliviero Roggi, Torben Juul Andersen, Steffen Andersen

Number of attendees: 281 and Bjarne Astrup Jensen Time 11.15-13.15 D6.018 - Ground Floor Room Papers submitted: 69 Number of attendees: 240 Papers submitted: 120

INTERNATIONAL RISK MANAGEMENT CONFERENCE 2009 Financial Instability. A new world framework? INTERNATIONAL RISK MANAGEMENT CONFERENCE 2014 An interdisciplinary analysis of the new risk scenario The Safety of Financial System: From Idiosyncratic to Systemic Risk Venice, Italy, June 22nd - 24th, 2009 Warsaw, Poland, June 15th -16th, 2014 Host institution: Ca’ Foscari University of Venice Host institution: Warsaw School of Economics Chairmen: Edward Altman, Oliviero Roggi and Giorgio Bertinetti Chairmen: Edward Altman, Oliviero Roggi and Malgorzata Iwanicz-Drozdowska Number of attendees: 211 Number of attendees: 210 Papers submitted: 83 Papers submitted: 157 Room D6.018 - Ground Floor Time 11.15-13.15

INTERNATIONAL RISK MANAGEMENT CONFERENCE 2010 INTERNATIONAL RISK MANAGEMENT CONFERENCE 2015 Financial Stability and Value. Will the capital markets recover permanently? The New Risk Management Paradigm: How Investments, Financial Stability An interdisciplinary perspective on today’s new risk scenario. and Regulation will shape the European and Global Financial Markets New York University Florence Campus, Italy, June 3rd - 5th, 2010 Luxembourg, June 15th -16th, 2015 Host institution: New York University Salomon Centre Host institution: European Stability Mechanism Chairmen: Edward Altman, Oliviero Roggi and Francesca Campolongo Chairmen: Edward Altman, Oliviero Roggi and Menachem Brenner Number of attendees: 210 Number of attendees: 220 Papers submitted: 104 Papers submitted: 115

INTERNATIONAL RISK MANAGEMENT CONFERENCE 2011 INTERNATIONAL RISK MANAGEMENT CONFERENCE 2016 New Dimensions in Risk Management Risk Management and Regulation in Banks and Other Financial Institutions. Amsterdam, Netherlands, June 14th - 15th, 2011 How to Achieve Economic Stability? Host institution: VU Vrije University of Amsterdam Jerusalem, June 13th -15th, 2016

Monday morning, June 12 Chairmen: Edward Altman, Oliviero Roggi and Herbert Rijken Host institution: Hebrew University of Jerusalem Number of attendees: 220 Chairmen: Edward Altman, Oliviero Roggi and Menachem Brenner Papers submitted: 174 Number of attendees: 220 Papers submitted: 115 Conference Keynotes and Speakers Bios 20 Conference Keynotes and Speakers Bios Conference Keynotes and Speakers Bios 21

In order of presentation

Linda Allen Giovanni Barone-Adesi William F. Aldinger Chair in Banking and Finance at Zicklin School of Professor of Finance Theory and Director at the Swiss Finance Institute, Business, Baruch College, City University of New York University of Lugano, Switzerland

Professor Allen’s research and consulting interests include: Banking and He studied electrical engineering as an undergraduate at the University of Financial Intermediation, Mortgage Finance, Securities Litigation. Padova. Later he received a MBA and a PhD from the Graduate Business School at the University of Chicago, specializing in Finance and Statistics. Before moving to Lugano he has taught at the University of Alberta, University of Texas at Austin, the Wharton School of the University of Pennsylvania and City University. His main research interests are derivative securities, asset and risk management. He is the author of several models for valuing and hedging Cristiano Zazzara securities. Especially well-known are his contributions with Whaley to the Managing Director and Head of Global Risk Services Relationship pricing of American commodity options and his filtered simulation approach Management to the measurement of market risk, developed while advising the London Clearing House. His more recent works concern the pricing of index options, He is an expert in financial risk management with over 20 years experience barrier options, gold derivatives. Currently he is president of Open Capital, at banks, government agencies, service providers, universities and think tanks. a fund management firm. He has been an advisor to several exchanges, He joined from MSCI-RiskMetrics where he was the Head of Market, Credit, financial intermediaries and other business organizations in the areas of risk Counterparty Risk and OTC Clearing Business for the EMEA Banking sector, management and financial strategy. and Global Head of Credit Advisory Business for Buy-side and Sell-Side Institutions. Previously, he was Managing Director in the Research & Strategy Unit of Unicredit Group, Managing Director and Head of the Internal Rating Unit at Capitalia Banking Group, and General Manager of the Italian Association of Banking and Finance (ASSONEBB). He also served as a financial economist William T. Ziemba at the Fondo Interbancario di Tutela dei Depositi, as Head of the Research Alumni Professor (Emeritus) of Financial Modeling and Stochastic Optimization in the Sauder School of Business Department. He received a BSc in Economics & Business and a MSc in Banking from the University La Sapienza of Rome, and a PhD in Management (Finance) His PhD is from the University of California, Berkeley. He currently teaches part from the Swiss Federal Institute of Technology in Lausanne (EPFL). time and makes short research visits at various universities. Recently he is the Distinguished Visiting Research Associate, Systemic Risk Centre, London School of Economics. He has been a visiting professor at Cambridge, Oxford, London Menachem Brenner School of Economics, University of Reading and Warwick in the UK, at Stanford, Research Professor of Finance at New York University - Stern School of UCLA, Berkeley, MIT, University of Washington and Chicago in the US, Universities Business of Bergamo, Venice and Luiss in Italy, the Universities of Zurich, Cyprus, Tsukuba (Japan), Sabanci (Turkey), EDHEC (France), KAIST (Korea) and the National His primary areas of research include derivative markets structure, option pricing, University and the National Technological University of Singapore. He has been inflation expectations, auctions, market efficiency and liquidity. His articles have a consultant to a number of leading financial institutions including the Frank appeared in leading journals in finance and economics including the Journal Russell Company, Morgan Stanley, Buchanan Partners, RAB Hedge Funds, Gordon of Finance, the Journal of Financial Economics, the Journal of Business, the Capital, Matcap, Ketchum Trading and, in the gambling area, to the BC Lotto Journal of Political Economy and the Journal of Monetary Economics. In 1986, he Corporation, SCA Insurance, Singapore Pools, Canadian Sports Pool, Keeneland co-invented (with Prof. Galai) the volatility index based on the prices of traded Racetrack and some racetrack syndicates in Hong Kong, Manila and Australia. index options and introduced the idea of volatility derivatives, an idea which His research is in asset-liability management, portfolio theory and practice, was implemented 20 years later. He was a founding editor of the Review of security market imperfections, Japanese and Asian financial markets, hedge Derivatives Research and has served on several editorial boards and program fund strategies, risk management, sports and lottery investments and applied committees. In addition to working with doctoral students and teaching the stochastic programming. popular finance course on “Futures and Options,” he served as deputy chairman of the finance department and is currently the director of the Masters in Global Finance program, a joint venture between the Hong Kong University of Science and Technology’s Business School and NYU Stern. Before joining Stern, he was a tenured faculty member at the Hebrew University and a Visiting Professor at Berkeley, the University of Bergamo, University of Melbourne and Tel Aviv University. He also served as an Advisor to the Bank of Israel, the Securities Authority and was a board member of the Tel Aviv Stock Exchange. 22 Conference Keynotes and Speakers Bios Conference Keynotes and Speakers Bios 23

Edward Altman Santiago Carbo-Valverde Max L. Heine Professor of Finance and Director of Research in Credit and Professor of Economics and Finance at the Bangor Business School, UK Debt Markets at the Salomon Center for the Study of Financial Institutions at the New York University Stern School of Business He is the Head of Financial Studies of the Spanish Savings Bank Foundation (FUNCAS). He is a member of the Group of Economic Advisers (GEA) of ESMA Dr Altman received his MBA and PhD in Finance from the University of (European Securities and Markets Authority) and of the European Shadow California, Los Angeles. Prior to serving in his present position, he chaired Regulatory Committee. He has been (and in some cases still is) lead researcher and Stern’s MBA program for 12 years. Dr. Altman was named to the Max L. Heine consultant for public institutions such as the European Central Bank, the European endowed professorship at Stern in 1988. Internationally recognized as an Commission, the Spanish Ministry of Science and Innovation, the Spanish Ministry expert on corporate bankruptcy, high yield bonds, distressed debt, and credit of Labour and the Institute of European Finance, and for private institutions such risk analysis. He served as President of the Financial Management Association as banks. Former Consultant at the Federal Reserve Bank of Chicago. His field of in 2003, and was appointed an FMA Fellow in 2004. Dr. Altman was named expertise covers the analysis of financial intermediaries and markets, including one of the most influential people in Finance by Treasury & Risk Management lending and securitization technologies and the finance-growth nexus, with magazine in 2005, he is a Founder and Executive editor of the international particular attention to SME finance. publication and has published or edited many books and articles in scholarly finance, accounting, and economic journal. His work has appeared in many languages including French, German, Italian, Japanese, Korean, Portuguese and Spanish. He has been Chairman Emeritus and a member of the Board of Massimo Marchesi Trustees of the Interschool Orchestras of New York, and a founding member of European Commission - DG Financial Stability, Financial Services and the Board of Trustees of the Museum of American Finance. Capital Markets Union

He is an officer in the European Commission since 2000. He is presently working in the National financial systems Unit of the Directorate General Michael Gordy for Financial Stability, Financial Services and Capital Markets Union. Before Principal Economist at the Federal Reserve Board in Washington, DC that he served the European Commission mostly in other financial services related departments, dealing with a broad range of issues, from insurance and He has held visiting appointments at Princeton and at the Indian School of pension funds to financial stability and resolution. Apart from the European Business. He serves as co-Editor-in-Chief of the Journal of Credit Risk, and as Commission, he has also worked some years in the private sector, mostly an associate editor of the Journal of Banking and Finance and the International for financial services consultancy firms. Alongside his work, he is active in Journal of Central Banking. Michael is a recipient of Risk’s 2004 Quant of the Year economic policy research. and GARP’s 2003 Financial Risk Manager of the Year awards. Most of his research pertains to modeling credit risk at the single-name and portfolio levels, to the computation and estimation of such models, and to regulatory applications such as minimum capital requirements. Michael received his PhD in economics from Federico Galizia MIT in 1994. Chief Risk Officer of the Inter-American Development Bank

He leads the Office of Risk Management, with the responsibility for overseeing and maintaining the Bank’s capacity to identify, measure, and manage financial and operational risk. Prior to joining the Bank, Mr. Galizia served as Head of Risk and Portfolio Management and Chairman of the Investment and Risk Committee at the European Investment Fund (EIF). Before that, he was Deputy Division Chief in the Monetary and Capital Markets Department of the International Monetary Fund (IMF) and Adviser to the President of the European Investment Bank (EIB). Mr. Galizia holds a Ph.D. in Economics from Yale University, and has published and taught MBA courses in the fields of risk management and corporate finance. He is the editor of Managing Systemic Exposure: A risk management framework for SIFIs and their markets, published by Risk. 24 Workshop Program Workshop Keynotes and Speakers Bios 25

Mario Nava Head of the “Banking and Financial conglomerates” Unit in the Internal Markets Practitioners' Workshop on Financial Markets and Institutions and Services DG of the European Commission The Risk Management and Financial Regulation Nexus Holds his first degree in Economics from Bocconi University (1989), an MA from the European University Institute, Florence - June 13, 2017 Université Catholique de Louvain, Belgium (1992) and a PhD in Public Finance from the London School of Economics (1996). From November 2009 he is the Head of the This half-day workshop, jointly organized with the European University Insitute, Florence School of “Banking and Financial conglomerates” Unit in the Internal Markets and Services Banking and Finance, will explore the increasingly intertwined nature of risk management processes DG of the European Commission. Previously, he was, from May 2004 to October and financial regulation. 2009, the Head of the “Financial markets infrastructure” Unit, which is responsible for Adopting an explicit practitioners’ perspective, the workshop will come to grips with the interplay of ensuring a proper conception and implementation of the regulatory environment for regulation and risk management in a period where risk assessment methodologies are becoming the post-trading area of the EU Financial Markets. From December 2007 to 31st May increasingly complex and closely intertwined with the regulatory and supervisory framework (e.g. 2008, he was Acting Director for the whole Financial Services Policy and Financial increasing monitoring of business models of Financial Institutions; advanced macro-prudential Markets Directorate. Before that he was a member of the Group of Policy Advisers of measures; new powers for resolution authorities on early intervention and resolution planning). the EU Commission President, Prof. Romano Prodi (2001-2004). Within the Group he was responsible for economic matters in general and in particular for the EU budget The workshop will bring together policy-makers and risk management practitioners in an academic and economic policy coordination between the Member States. He worked for the environment to illustrate, analyse and engage with those challenges. Commission’s Taxation Department (1994-1996), for the Budget Department (1996- 2000), and in the Cabinet of the Competition Commissioner, Prof. Mario Monti (2000- 2001). Alongside his work at the European Commission he is active in research and teaching. Since 1998 he has been visiting professor at Milan’s Bocconi University and a member of the Economic Faculty of ISPI, Milan (Diplomatic School of the Italian Ministry of Foreign Affairs) as well as an occasional lecturer in many universities across Europe.

David L. Yermack Albert Fingerhut Professor of Finance and Business Transformation at New York University Stern School of Business 14.45-15.00 Welcoming remarks and introduction Elena Carletti Bocconi University and Florence School of Banking and Finance He serves as Chairman of the Finance Department and Director of the NYU Pollack Center for Law and Business. Professor Yermack teaches joint MBA - Law School 15.00-16.15 Keynote speeches courses in Restructuring Firms & Industries and Bitcoin & Cryptocurrencies, as well as Chair Elena Carletti Bocconi University and Florence School of Banking and Finance PhD research courses in corporate governance, executive compensation, and distress and restructuring. Professor Yermack has been with NYU Stern since 1994. His primary research areas include boards of directors, executive compensation, and corporate Mario Nava European Commission finance. Professor Yermack has published more than 25 articles in leading academic

“Financing Growth in Europe: management of risk and efficient journals in Finance, Accounting, Economics, and Law. He is a Faculty Research Associate allocation of resources by the European Financial Sector” of the National Bureau of Economic Research and has been a Visiting Scholar at the U.S. David Yermack NYU Stern Federal Reserve Bank. He received his Bachelor of Arts in Economics (1985), Master of “Risk in the Era of FinTech” Business Administration (1991), Juris Doctor (1991), Master of Arts in Business Economics (1993), and Doctor of Philosophy in Business Economics (1994) from Harvard University. Q&A 16.30-18.00 Round table Cosimo Pacciani Chair and Moderator Cosimo Pacciani European Stability Mechanism Chief Risk Officer for the European Stability Mechanism Giuseppe Lusignani University of Bologna and Prometeia He has joined this key European institution as Senior Credit Officer and Deputy Head Davide Alfonsi Intesa Sanpaolo of Risk in 2014. Previously, he spent 20 years working in the City of London. He has JRC - European Commission Francesca Campolongo been for 11 years at Royal Bank of Scotland, where he has been Chief Operating Officer Michel M. Dacorogna DEAR Consulting for the Group Credit Risk function and Head of Risk and Compliance for the Asset Bruna Szego Bank of Italy Protection Scheme, the mechanism established to rescue the British banking system. Previously, at RBS he was Head of Credit Risk for Corporate and Public Institutions Q&A in Europe. He has worked previously in portfolio management at Credit Suisse First Boston and for the London branch of Monte dei Paschi di Siena in London, dealing with 18.20 Shuttle bus to Antinori Winery derivative products and portfolio management. He holds a Ph.D. from the Faculty of Economic Sciences of the University of Siena and a Master Degree from the Faculty of Economics of the University of Florence. 26 Workshop Keynotes and Speakers Bios Workshop Keynotes and Speakers Bios 27

Giuseppe Lusignani Michel Dacorogna Full professor of Banking and Finance at the University of Bologna, Vice Chairman Head of DEAR-Consulting of Prometeia and Member of the Prometeia Associazione Scientific Committee He is the former scientific advisor to the chairman of SCOR. He conducts research He is an independent director and chairman of Arca Fondi Sgr. He is an Economics in the field of insurance mathematics, capital management and risks. He presents graduate from the University of Modena. He continued his studies in finance at models and capital management techniques to management and customers. He New York University and completed a PhD in Capital Markets and Financial is Member of the board of the Research Center on Insurance Risk at the Nanyang Management at the University of Bergamo. He has been an adviser to leading Technical University of Singapore, he collaborates with the center on their various financial institutions on risk management and financial management issues, initiatives. Until July 2013, Michel was deputy group CRO of SCOR in charge of included Bank of Italy, Consob, Italian Antitrust Authority, Assogestioni and Italian Solvency II and the internal model. He was at the origin of SCOR’s internal model, Banking Association. He is a Member of the Disciplinary Committees of London which he developed with his team for more than 10 years. Author and co-author Stock Exchange Group Holding Italia, CC&G (Cassa Compensazione e Garanzia), of more than 85 publications in refereed scientific journals; he is often invited to Monte Titoli and BItMarket Service. He is a member of the editorial boards of the present his results in international conferences and specialized seminars. His work journals Banca Impresa Società (Il Mulino) and Bancaria(Bancaria Editrice). is referenced in many publications. One of the papers he co-authored was the most quoted paper over 5 years in the Journal of Banking and Finance. His book: “An Introduction to High Frequency Finance” remains a reference in the field. He Davide Alfonsi also lectures at the ETH and University of Zurich, at the University Ca’Foscari in Chief Risk Officer at Intesa Sanpaolo Venice (Italy) and at the University of Turin (Italy) in their master of finance and insurance programs. He received his Habilitation, Ph. D. and M. Sc. in Theoretical He graduated in Economics at the University of Turin in 1988 and enrolled in the Physics from the University of Geneva in Switzerland and did a post-doc at the Register of Chartered Accountants and in the Register of Statutory Auditors. He University of California in Berkeley. started his career with Arthur Andersen, where he built up significant experience in auditing and consulting, working principally in the Financial Sector. He joined Sanpaolo in 1988 and in the same year he was appointed as Head of Risk Control Bruna Szego of Sanpaolo IMI. In 2004 he became Head of the Group Risk Management Head of the Regulation and Macroprudential Analysis Directorate at Bank of function. In January 2007, after the merger between Intesa and Sanpaolo, he was Italy appointed as Head of the Group Risk Management Department and in June 2015 he became Group Risk Manager, deputy to the Chief Risk Officer. Among other She graduated in 1989 with honours in Law at the LUISS University in Rome, relevant experiences, he was a member of the CEBS’ Consultative Panel (now EBA) with a thesis on commercial criminal law. She is qualified to practise law. She from 2006 to 2010 and a member of GEBI (Group of Experts in Banking Issues) for joined the Bank of Italy at its Head Office in 1990 working for the Supervision the European Commission from May 2010 to October 2011. Since February 2013 he Area, where she helped devise the domestic and European framework for non- has been the Chairman of AIFIRM (Italian Association of Financial Industries Risk bank financial intermediation and contributed to drafting the Consolidated Laws Managers). on Banking and on Finance. In 1999 she moved to the Law and Economics Unit, where she carried out analysis and research on corporate governance, civil justice, and finance for growth. She was involved as national expert in European projects Francesca Campolongo concerning corporate and financial markets law, and played a part in the reform Head of the Finance and Economy Unit at the Joint Research Centre, European of Italian corporate law and bankruptcy law. Returning to the Supervision Area in Commission 2007, the following year she was appointed Head of Division in the Supervisory Regulations and Policies Department; in this capacity, among other things, she She has been working in the JRC since 1998, where she also obtained a prize as was responsible for regulations for bank corporate governance, remuneration “best young scientist of the year” in 2002. Currently, she is actively involved in the systems and protection of bank customers. She joined the senior management work of the European Commission to create a safer and sounder financial system of the Regulation and Macroprudential Analysis Directorate in 2014 where she and to recover from the economic crisis. In particular, over the last few years she has was responsible for coordinating the work to implement the new European contributed to EC proposals on higher capital requirements for banks, harmonised rules on bank crises. She became Deputy Head of the Directorate in 2016. She deposit protection schemes, EU Framework for bank recovery and resolution, has published articles and papers on her areas of interests, spoken at numerous and bank structural reform. As background, Francesca is a mathematician (she conferences and appeared on behalf of the Bank at Parliamentary hearings. She graduated in Pisa University, Italy) with a PhD in modelling and sensitivity analysis has been a member and President of the Bank of Italy’s recruitment boards for (Griffith University, Australia). Her main research interests focus on financial new graduates. She has represented the Bank on a number of occasions, at markets modelling and financial risk analysis. Working in support to EU policy European level as well. She is currently alternate member of the Single Resolution makers she has developed skills in calibration and ex ante impact assessment Board set up within the Single Resolution Mechanism. She is also a member of the of financial regulation, with particular attention to the banking sector. She is EBA Resolution Committee. the author of ~30 publications in academic journals, co-author of 3 books on sensitivity analysis published by Wiley, and co-author of 2 books on Securitization published by Wiley and Springer. Achivements and IRMC2017 Publication Opportunities 30 Achievements Achievements 31

“Managing and Measuring Risk. Emerging Global IRMC 2014 Special issue of Review of Finance Standards and Regulation after the Financial Crisis” Published in 2017, Vol 21, issue 1

Editors: Oliviero Roggi and Edward Altman Editor: Franklin Allen Monday morning, June 12 Guest Editor: Menachem Brenner The IRMC 2008-2012 Keynotes Commemorative Book presents the most recent achievements in risk measurement and mana- In June 2014, the International Risk Management Conference (IRMC) gement, as well as regulation of the financial industry, with contri- held its 7th edition in the Warsaw School of Economics (Warsaw, butions from prominent scholars and practitioners such as Robert Poland). The theme of the conference was “The Safety of the Fi- Engle, 2003 Nobel Laureate in Economics, Viral Acharya, Tor- nancial System: From Idiosyncratic to Systemic Risk.” Thirty-three ben Andersen, Zvi Bodie, Menachem Brenner, Aswath Damoda- papers were submitted for review for publication in this special is- ran, Marti Subrahmanyam, William Ziemba and others. The book sue of the Review of Finance. Three papers were accepted for pu- provides a comprehensive overview of recent emerging standards blication. One (Fiordelisi and Ricci, 2016) was published in the last in risk management from an interdisciplinary perspective. Indivi- issue (Review of Finance 20(6), 2321–2347) and the other two were dual chapters expound on the theme of standards setting in this published in this issue. The first two papers deal with systemic and era of financial crises where new and unseen global risks have policy aspects of the financial system while the third deals with an emerged. The chapters are organized to allow the reader with important segment of the financial markets, defaulted bonds. The a broad perspective of the new emerging standards in macro, paper by Oet, Ong and Lyytinen “aims to determine whether po- systemic and sovereign risk before zooming into the micro licymakers’ discussions of financial stability and other factors sy- perspective of how risk is conceived and treated within a corporation. stematically explain deviations of observed policy rates from the

A section is dedicated to credit risk and to the increased importance Taylor-rule-implied rates.” The paper by Fiordelisi and Ricci compa- Time 11.15-13.15 D6.018 - Ground Floor Room of liquidity both in financial systems and at the firm’s level. res different policy approaches to financial crises. Using a detailed dataset of worldwide policy, trying to answer the question. The paper by Kalotay and Altman focuses on a comparison of alternative approaches to forecasting recoveries.

IRMC 2012 Special Issue on FORTHCOMING “Financial Markets, Institutions & Instruments” Room D6.018 - Ground Floor Time 11.15-13.15 Vol 22, Number 2 IRMC 2016 Special issue on Guest Editors: Oliviero Roggi University of Florence & RBF “Quarterly Journal of Finance” Francesca Campolongo JRC European Commission Editors: Jean Helwege, University of California, Riverside and and Riccardo De Lisa University of Cagliari & FITD Fernando Zapatero, University of Southern California Guest Editors: Dan Galai, HUJI and Zvi Wiener, HUJI - PRMIA The special issue presents five papers selected among the several presented at IRMC 2012. These papers address the issue of financial stability by investigating some potential sources of banks’ riskiness that can contribute to the instability of system. The first (Vallascas and Hagendorff) and the second (Switzer and Wang) papers focus on bank governance structures and CEO remuneration policies and try to investigate how these two aspects can be connected to the bank riskiness. The third (Boucher and Maillet) paper discusses the problem of model risk in VaR computations and documents a procedure for correcting the bias due to specification and estimation errors. Finally the fourth (De Spiegeleer and Schoutens) and the fi-

Monday morning, June 12 fth (Roggi, Giannozzi and Mibelli) papers present research results on contingent convertible bonds, analyzing potential sources of risks embedded into these financial instruments, and looking for possible solutions. 32 IRMC2017 Publication Opportunities 33

Selected papers on Journal of Financial Stability Editors in chief: Iftekhar Hasan

Selected Papers on Journal of International Financial Markets, Institutions and Money Editors in chief: Jonathan Batten

Special Issue of Journal of Credit Risk Editors in chief: Ashish Dev and Michael Gordy Guest editors: Edward Altman and Herbert Rijken

Special Issue of Journal of Financial Management, Markets and Institutions Editors in chief: Santiago Carbo-Valverde Co-editor: Paolo Mottura Guest editors: Giampaolo Gabbi and Oliviero Roggi Parallel Session Abstracts 36 Parallel Session A1 Parallel Session A1 37

A1 · Banking and financial Francesca Di Girolamo Joint Research Centre - European Commission Andrea Pagano Joint Research Centre - European Commission Monday morning, June 12 Marco Petracco Giudici Joint Research Centre - European Commission regulation “Does CRDIV provide an efficient way to deal with banks’ simultaneous defaults?” ABSTRACT Chairman: Andrea Pagano The Capital Requirement Directive IV issues detailed rules on the new global regulatory standards for bank capital adequacy. Among others, it requires all instruments in the additional Tier 1 layer Clas Wihlborg Chapman University, USA of a credit institution to be written down or converted into equity, as soon as the Common Eq- uity Tier 1 capital falls below 5.125% of risk weighted assets. Whether or not the new framework “Bail-ins: Issues of credibility and contagion” is making the banking sector more resilient, there is still one issue regulators have never dealt ABSTRACT with. What the Basel accord imposes to each bank is a regulatory minimum capital meant to There is an obvious dilemma when specifying bail-in rules since effective market discipline recover unexpected losses as the banks were isolated entities. But, in reality, banks are exposed to quires a credible promise of bail-ins for some creditors but the same credible promise creates common borrowers. The present study performs a quantitative assessment of banks being part incentives for these creditors to quickly liquidate their claims and “run” on a distressed bank. The of a common economic environment. We use a micro simulation portfolio model to estimate the credibility of bail-in mechanisms approaches to limit systemic consequences of bank failures are aggregate distribution of bank losses assuming banks are interconnected via a correlation struc- discussed. Available alternatives to resolutions affect the credibility of the procedures. For exam- ture and, possibly, a contagion network. Our results show that systemic loss in the presence of a

ple, precautionary recapitalization as in the case of Banco Monte dei Paschi is one such alterna- correlation across banks is 5% higher than what the system may experience without. The increase Time 11.15-13.15 D6.018 - Ground Floor Room tive. The paper concludes with an assessment of the consequences of the bail-in procedures for raises up to 40% when adding second effects. We developed a modelling framework to asses efficiency and stability of the banking systems. how different rules for allocating extra capital are able to annihilate the losses due to common- alities. We show that the regulatory rule of requiring extra capital as soon as the common equity falls down the 5.125% of risk weighted assets is more efficient than asking GSIBs or all banks to increase their Common Equity Tier 1. Results provide evidence that the allowance of debt instru- Marta Degl'Innocenti University of Southampton, UK ments in the additional Tier 1 of being converted into equity may be an efficient macro-prudential Daniel Mayorga University of Southampton, UK tool to face banks' simultaneous defaults and would help in dealing with the missing piece in the Nemanja Radic Middlesex University, UK Basel framework. Simon Wolfe University of Southampton, UK “Did the Dodd-Frank Act. 2010 enhance the risk exposure of complex bank Room D6.018 - Ground Floor Time 11.15-13.15 holding companies in the US?” Ana I. Fernandez Cunef, Spain ABSTRACT Francisco Gonzalez University of Oviedo, Spain We examine the impact of the 2010 Dodd-Frank Act. on the risk exposure of US Bank Holding Nuria Suarez Cunef, Spain Companies. In particular, we compare the stability and engagement in the shadow banking acti- “Creditor rights and information sharing the increase in nonbank debt vities of complex institutions that were subject to tight supervision and restrictions under the during banking crises” Dodd-Frank Act., to those of non-complex institutions. By employing difference-in-difference estimators, we find that the Dodd-Frank Act. enhances the stability of those complex banks clas- ABSTRACT sified as either credit-extending institutions or defined as complex by supervisory-judgment, whi- We analyze how the protection of creditor rights and information sharing among creditors af- le it did not impact on other types of institutions. Our findings for shadow-banking activities are fect the substitution between bank and nonbank debt during banking crises. Applying a differ- mixed. Again, complex institutions with credit-extending activities are the only entities to have ence-in-differences methodology in a firm-level database across 34 countries, we find that both reduced their income derived from activities with their non-bank affiliates. Overall, we find evi- private and public nonbank credit sources partially substitute bank loans in bank-dependent firms dence that large complex institutions decrease their debt exposure with non-bank affiliates after after the onset of the global financial crisis. Strong creditor protection in bankruptcy increases the the regulatory change. However, at the aggregated level, consolidated bank holding companies reduction in bank debt whereas a collateral regime favors the increase in private nonbank debt. increased engagement in non-traditional financial activities with their non-bank affiliates. Information sharing favors the increase in public debt. The empirical analysis controls for country differences in banking development and competition, shareholder protection, institutional quality and the severity of the crisis, and for alternative model specifications and sample variations. Monday morning, June 12 38 Parallel Session A2 Parallel Session A2 39

Ettore Panetti Banco de Portugal A2 · Systemic risk Luca Deidda University of Sassari, Italy “Banks’ Liquidity Management and Systemic Risk” Monday morning, June 12 ABSTRACT We study a novel mechanism through which financial risk, in the form of self-fulfilling runs, trig- gers excessive liquidity holding in the banking system. In the model, banks offer insurance to their depositors against idiosyncratic liquidity shocks and real aggregate risk, by holding a portfolio Chair: Małgorzata Iwanicz-Drozdowska of liquid and safe assets as well as productive and illiquid ones. Moreover, banks’ asset portfolios and depositors’ self-fulfilling expectations are jointly determined via a "global game". In equilib- Sebastian Schich OECD, France rium, an endogenous pecking order emerges: if the recovery rate associated with early liquida- Oana Toader Banque de France tion of the productive assets is sufficiently low and the depositors are sufficiently risk averse, the “To be or not to be a G-SIB: Does it matter?” banks first employ liquidity and then liquidate the productive asset, in order to finance depositors’ withdrawals. Ex ante, the banks hold liquidity in excess of the amount that they would hold in a ABSTRACT benchmark full-information economy, in which there are no runs and systemic risk is only due to Recent regulatory reform efforts squarely focus on eliminating the notion that some banks are real aggregate risk. “special” in the sense that they are considered too big or important for other reasons to (be allowed to) fail on the servicing of their debt. In this context, the present paper asks what has been the effect on the value of implicit bank debt guarantees of the recent approach taken by the FSB

of identifying and subjecting to special regulatory and supervisory treatment a group of so-cal- Paola Zerilli University of York, UK Time 11.15-13.15 D6.005 - Ground Floor Room led G-SIBs. Based on a sample of 27 G-SIBs and a control group of 177 other large banks from 23 Christopher Baum Boston College, USA countries for the period from 2007 to 2015, the paper finds that G-SIBs benefit from a significantly higher value of implicit guarantee than other banks. It fails to find evidence that the introduction “Systemic and country-specific volatility shocks in the Eurozone sovereign by the FSB of the list of G-SIBs (around the middle of the sample period) has mattered in the sen- credit default swap spreads: a GMM analysis” se that the debt of these designated banks is now perceived as “less special” than that of other ABSTRACT banks. The paper confirms earlier findings that changes in bank failure resolution regimes and in We model the time series of CDS spreads on sovereign debt in the Eurozone allowing for stochas- particular resolution practices have reduced the value of implicit bank debt guarantees, although tic volatility and examining the effects of country-specific and systemic shocks. Challenges to less so for G-SIBs than for other banks. the stability of the Euro from threats of default by several Eurozone countries have raised serious concerns and led to unprecedented policy responses. We aggregate daily quotations in order to derive composite weekly quotations. This allows us to have a measure of the weekly realized Room D6.005 - Ground Floor Time 11.15-13.15

volatility and study the behavior of the weekly CDS returns. We build a panel Generalized Method Luca Riccetti University of Macerata, Italy of Moments (GMM) estimator where we analyze the effects of two different sources of volatility: Marina Brogi La Sapienza University of Rome, Italy idiosyncratic volatility and systemic volatility. We find that the parameter, which captures the Valentina Lagasio La Sapienza University of Rome, Italy impact of systemic volatility on specific CDS returns is significantly different from zero for all the Pasqualina Porretta La Sapienza University of Rome, Italy countries. Its sign is positive for most "virtuous" countries (apart from Netherlands) while being “Systemic risk measurement: bucketing SIFI’s between literature and super- negative for most "troubled" countries (apart from Spain). visory view” ABSTRACT Despite a general consensus on the importance of systemic risk and the need to keep it under control, considerable differences remain between the supervisors and academic discourse. In this perspective, the paper aims to: 1. measure the marginal contribution to systemic risk of 26 SIFIs using the Distressed Insurance Premium (DIP) methodology proposed by Huang et al. (2009) and Tarashev and Zhu (2008b); 2. compare results with those emerging from the SRISK measure reported in the NYU Stern Systemic Risk Rankings and based on the Capital Shortfall of Acharya et al. (2012); 3. divide SIFIs in risk buckets and compare our results with the buckets established by the Financial Stability Board and the Basel Committee on Banking Supervision.

Monday morning, June 12 Because it leads to different capital requirements, bucketing should be straightforward and ideally consistent irrespective of methodology used. Instead, as shown in the paper, striking discrepancies in the allocation between buckets emerge. 40 Parallel Session A3 Parallel Session A3 41

A3 · Banking and risk taking Enrica Bolognesi University of Udine, Italy Stefano Miani University of Udine, Italy Monday morning, June 12 Cristiana Compagno University of Udine, Italy Roberto Tasca University of Udine, Italy “The puzzle of NPLs during the financial crisis: the cost of deleveraging” ABSTRACT Chairman: Stefano Miani The massive stock of NPLs forces European banks to implement a strategy for their disposal in order to revitalize lending activity and preserve financial stability. Italian banks have reached Rafael Schiozer Fundacao Getulio Vargas, Brazil & CBS, Denmark an historical peak of NPLs and are called to proceed, promptly, with the deleveraging of their Frederico Mourad FGV, Brazil portfolios. This paper analyses the cost of deleveraging, focusing on two alternative strategies: Ramon Vilarins Central Bank of Brazil the portfolio sale and the securitization. Then, we show the impact of an additional cost deriving from the set of uncertainties dominating a recovery procedure, namely the cost of opacity. Finally, “Bank risk-taking, sovereign capacity and bank bailouts in crisis periods: a we observe the risk-return profile of the securities arising from the two strategies, stimulating the cross-country analysis” debate about their attractiveness as a potential new asset class. ABSTRACT This paper analyzes the impact of government bailout policies on the risk of the banking sector in OECD countries between 2005 and 2013. Consistent with previous literature, we verify that

financial institutions with high bailout expectations assume higher risks than others do. We also Michael Gelman Ben-Gurion University, Israel Time 11.15-13.15 D6.006 - Ground Floor Room find that, in normal times, rescue guarantees to large financial institutions distort competition in Doron Greenberg Ariel University, Israel the sector and increase the risk of the unprotected institutions. Moreover, unprotected banks de- Mosi Rosenboim Ben-Gurion University, Israel crease their risk exposures faster than protected banks after the eruption of the 2007-2008 crisis, “How did the 2008 Crisis Change the Relationship between Risk Manage- particularly in countries with deteriorated sovereign capacity to bailout banks. Taken together, ment and the Performance of US Banks?” these results indicate that a reduction in bailout probability decreases bank risk taking. ABSTRACT In this paper we examine whether and how the global financial crisis in 2007-2009 changed the relationship between risk management and the performance of US banks and whether investors Ji Wu Southwestern University of Finance and Economics, China have begun to assess the characteristics of risk management differently after the crisis. We find Bang Nam Jeon Drexel University, USA that while in the pre-crisis period there was no significant relationship between the banks’ sources of funding or non-performing loans and their performance, after the crisis, higher initial levels of Room D6.006 - Ground Floor Time 11.15-13.15 “Does foreign bank penetration affect the risk of domestic banks? Evidence stable funding and fewer non-performing loans were related to that performance. We suggest from emerging economies” that this change stems from the fact that during the crisis, banks that had more stable financing ABSTRACT and fewer non-performing loans performed better. We also find that after the crisis, the relation- We investigate whether foreign bank penetration affects the risk-taking of domestic banks in ship between risky assets or the Tier 1 Basel capital ratio and the banks’ performance became emerging economies. By using bank-level data from 35 markets during the period of 2000-2014, non-significant, because the crisis undermined investors' confidence in the banks’ independent we find significant evidence that the riskiness of domestic banks increases with the presence of models for risk-weighted assets. foreign banks, and this finding is shown to be consistent in a series of robustness examinations. We also explore various conditions for the heterogeneity of the nexus between foreign bank penetration and domestic banks’ risk-taking, including: (1) what types of domestic banks are affected more by the presence of foreign banks, and (2) what patterns of foreign penetration exert more pronounced impact. Monday morning, June 12 42 Parallel Session A4 Parallel Session A4 43

A4 · Risk management in Cecilia Caglio Federal Reserve Board, USA Matt Darst Federal Reserve Board, USA Eric Parolin U.S. Department of the Treasury, USA Monday morning, June 12 financial markets “Half-full or Half-empty? A Direct Test of the Impact of CDS Trading on Corporate Credit Risk” ABSTRACT Chairman: Franco Fiordelisi We provide the first direct test of the impact that credit default swap (CDS) trading has on corporate credit risk. We use unique supervisory data to directly match U.S. bank CDS transactions Kamil Pliszka Deutsche Bundesbank, Germany with corporate loans and corporate bond holdings. First, we document that banks are largely Daniel Foos Deutsche Bundesbank, Germany net sellers of credit protection for a significant portion of their credit portfolio. We then directly Eva Lütkebohmert University of Freiburg, Germany test how banks CDS positions’ affect underlying CDS reference entity credit risk by conditioning Mariia Markovych University of Freiburg, Germany on the observations where banks are net protection buyers. Our results suggest that corporate credit risk is not adversely affected when banks purchase credit protection. Lastly, we find that, if “Euro area banks' interest rate risk exposure to level, slope and curvature anything, CDS trading is associated with a reduction in different measures of corporate credit risk. swings in the yield curve” Overall, our results can be explained through two channels: 1) banks use their superior monitoring ABSTRACT technologies to take directional bets on credit risk improvement via the CDS market (net sell po- This article investigates interest rate risk exposures of listed euro area banks which fall under the sitions), and 2) consistent with Parlour and Winton (2013), CDS support better monitoring of some

Single Supervisory Mechanism (SSM). First, we use the Bayesian DCC M-GARCH model to assess credits leading to reduced credit risk (net buy positions). Time 11.15-13.15 D6.011 - Ground Floor Room banks' stock price sensitivities to principal components of changes in the yield curve describing shifts in its level, slope and curvature. Second, we investigate how these sensitivities vary depending on bank-level characteristics (e.g. balance sheet composition, reliance on interest rate income). Our findings reveal that, on average, banks benefit from positive level shifts and steepening Francesco Pesci UniCredit Bank, Italy yield curves. Curvature changes affect banks' share prices as well, particularly in times of crises. “Measuring ECB's Communication: A "Media-Based" Automated Approach” Further, these sensitivities change in time and depend heavily on the banks' business model and balance sheet composition. Our analyses show that larger banks, banks with higher capital ratios ABSTRACT and banks with a higher part of customer loans are particularly sensitive to interest rate move- I present a new measure of the monetary policy communication of the European Central Bank ments. (ECB) with reference to future policy rate decisions of the Governing Council (GC) of the ECB. I construct an index based on the content of media articles published in days around monthly

Room D6.011 - Ground Floor Time 11.15-13.15 press conferences held by the ECB Presidents after meetings of the GC in the period between 1999 and 2013. I provide evidence that the index measures information related to the words pro- Taneli Mäkinen Bank of Italy nounced by the ECB Presidents at press conferences rather than to policy rate levels set at GC Francesco Palazzo Bank of Italy meetings immediately before press conferences. I study the relationship between the ECB's monetary policy communication, as measured by the index, and future monetary policy decisions of “The double bind of asymmetric information in over-the-counter markets ” the GC and I find it to be statistically significant. Finally, I find that "shocks" in the ECB's monetary ABSTRACT policy communication affect market expectations of future levels of the policy rates. In over-the-counter markets with heterogeneous asset qualities and individual valuations, private information about both of these value components amplifies the adverse selection problem attributable only to privately known asset quality. Specifically, when gains from trade are low, asymmetric information creates a double bind: either the market breaks down due to a classic lemons problem or low-quality assets are traded excessively, creating a congestion externality. A market designer may improve efficiency without incurring losses by acquiring all assets, issuing asset-backed securities of publicly known quality and capturing at least a part of the surplus from the future trades of these securities. Monday morning, June 12 44 Parallel Session A5 Parallel Session A5 45

A5 · Credit risk management and Paul Zimmermann Boussard & Gavaudan Asset Management, France

“Incorporating the leverage effect into the reduced-form approach to Monday morning, June 12 markets corporate default risk” ABSTRACT Starting from the analysis of a levered firm's capital structure, I show that corporate default risk becomes measurable in the stock option market through the so-called leverage effect observed Chairman: Cristiano Zazzara between stock prices and implied stock option volatilities. The corporate leverage actually gov- erns both the isoelasticities of variance and default probability relative to equity prices. This struc- Silvia Magri Bank of Italy tural parameter sets the balance between an exogenous default risk description through jumps to default and an endogenous default risk description via diffusion. My approach enables to specify “Are Lenders Using Risk-Based Pricing in Consumer Loan Market? The Effect the jump-to-default extended constant-elasticity-variance (JDCEV) modeling framework, and of the 2008 Crisis” allows for the reconciliation of the two traditional structural and reduced-form approaches to ABSTRACT credit risk. It offers a unified framework to model corporate liabilities, credit derivatives, stock op- This paper aims at verifying whether in Italy the price of consumer loans, such as loans to pur- tions, as well as hybrid securities such as convertible bonds. chase cars, furniture or for other purposes, is based on the specific risk of the borrower. This issue is important because mispricing could threat financial stability through negative effects on lenders' profitability; discrimination in prices also leads to a more efficient allocation of credit through less

rationing and lower prices for low-risk borrowers who are hence more able to smooth their consu- Patrycja Chodnicka-Jaworska University of Warsaw, Poland Time 11.15-13.15 D6.014 - Ground Floor Room mption, with positive effects on economic growth and ultimately on financial stability. By using “Banks’ Credit Ratings – the Impact of the Investor Type” data available in the biennial Survey of Household Income and Wealth since 2006, the evidence is that the price of consumer loans is more risk-based after the 2008 financial crisis. Household ABSTRACT economic and financial conditions (above all net wealth, but also number of income earners and The aim of the paper is an analysis of the determinants of banks’ credit ratings by taking into education as a proxy of permanent income) become significant and economically important in account the type of an investor. A literature review has been prepared and the ensuing hypothesis influencing the interest rates during the period 2010-12. These are also the most important drivers seems as follows: Banks with the government capital receive higher credit ratings than institu- of the probability that a borrower is delinquent on consumer loans; lenders also focus on these va- tions with private capital if financial factors are taken into account. The mentioned hypothesis riables in deciding to accept or not a loan application. As a consequence of the 2008 crisis, lenders has been verified with ordinary logit panel data models. Long-term issuer credit ratings proposed have therefore paid more attention to the borrowers' credit risk not only in the selection process, by three biggest credit rating agencies for banks from Europe have been used as dependent vari- but also in deciding the price of the loan. Another result is that when households search for better ables. The sample has been divided into subsamples according to the investor type, the bank size and the moment of a financial crisis. Room D6.014 - Ground Floor Time 11.15-13.15 terms of the contract, they indeed get lower interest rates.

Russ Moro Brunel University London, UK “Non-Parametric Company Rating” ABSTRACT This paper proposes a rating methodology that is based on a non-linear classification method, a support vector machine, and a non-parametric isotonic regression for mapping rating scores into probabilities of default. We also propose a four data set model validation and training procedure that is more appropriate for credit rating data commonly characterized with cyclicality and panel features. Tests on representative data covering 15 years of quarterly accounts and default events for 10,000 US listed companies confirm superiority of non-linear PD estimation. Our methodology demonstrates the ability to identify companies of diverse credit quality from Aaa to Caa-C. Monday morning, June 12 46 Parallel Session A6 Parallel Session A6 47

A6 · Corporate governance in Walter Gontarek Cranfield University - Cranfield School of Management, UK

“Risk Appetite Arrangements: Examining its Impact Upon BHC Outcomes” Monday morning, June 12 banking ABSTRACT This study examines the emergence of risk governance arrangements in US bank holding companies (BHCs) and tests for their impact upon outcomes. Following the financial crisis, regulators introduced several new risk governance processes, including the adoption of Risk Appetite Chairman: Maria Gaia Soana arrangements. The empirical research method relies on the collection of a unique data set. The sample covers a significant dollar-weighted portion of the US banking system. Multivariate anal- Jun Wang The University of Western Ontario, Canada ysis facilitates the testing of risk governance mechanisms to outcome variables, while controlling Keke Song University of Melbourne, Australia for firm-specific and standard corporate governance variables. The practical implication of this study with respect to Risk Appetite is clear. BHCs that practice Risk Appetite arrangements ex- “Are Banks Special? Evidence from Bank Activism” hibit improved performance outcome measures. This study examines a newly adopted risk gov- ABSTRACT ernance mechanism and presents evidence of a significant and positive impact of the board This study investigates the impact of bank activism on wealth of creditors of target firms. In level articulation of Risk Appetite arrangements to a suite of BHC outcome measures. As the contrast to negative bond reactions toward hedge fund activism documented in prior literature, first known empirical research study of Risk Appetite, it confirms that this board level mechanism we find bank activism is associated with significantly positive short-run abnormal bond returns. should be included as an explanatory variable in risk governance related empirical research stud- Additionally the average bond return in the bank activism sample is significantly higher than ies. These findings provide industry practitioners (including BHC chief executive officers and board

that of the non-bank activism sample. The difference between the two groups is larger when the members) convincing arguments for the immediate adoption of Risk Appetite arrangements. US Time 11.15-13.15 D6.015 - Ground Floor Room target firm’s credit quality is poor. Interestingly, the stock market reacts relatively less favorably Regulators, who introduced Risk Appetite requirements in 2014 for larger BHCs, are presented to bank activism in comparison with non-bank activism. We also find that bank activists are with validation by this study for wider adoption of this risk governance mechanism, even if such more likely to target larger financial firms with higher leverage and lower credit quality, and that practices are voluntarily adopted by BHCs. As signs begin to emerge in the United States of the bank activism is followed by greater reduction (more negative change) in leverage and stronger possible relaxation of the regulatory requirements of certain aspects of the Dodd-Frank Act, this improvement in credit quality and operating performance. These findings suggest that protecting study contributes to this debate in a timely fashion by testing the veracity of two key superviso- bondholders’ benefit could be an essential element of bank shareholder activists’ objectives. ry-driven risk governance practices aimed at the boardroom in an evidence-based evaluation.

Daniele Previtali LUISS, Italy Aparna Gupta Rensselaer Polytechnic Institute, USA

Room D6.015 - Ground Floor Time 11.15-13.15 Doriana Cucinelli University of Milan-Bicocca, Italy Haochen Liu Rensselaer Polytechnic Institute, USA

Maria Gaia Soana University of Parma, Italy & SDA Bocconi, Italy “Addressing the Risk Culture Challenge in Banking using Text Analytics” “Does corporate governance news influence investor behavior? Evidence ABSTRACT from the banking industry” We extend beyond banks' risk culture evaluation and classification using interviews and surveys ABSTRACT by applying text analytics to banks' annual reports. Benefiting from the sentiment dictionary This paper analyses the impact of corporate governance news on bank stock returns. Using the built by Loughran and McDonald (2011) and risk culture framework proposed by McConnell (2013), dictionary drawn up by Loughran and McDonald (2011), we create four categories of word lists to we develop a two-dimensional dictionary and extract paragraph level features reflecting senti- classify the content and the tone of information. We run text analysis over 3,129 announcements ment and risk culture topics from 10-K reports. We use legal expense data in a regression analysis related to US and European banks and published from 2003 to 2013. Our results show statistically based supervised learning for feature reduction and implement clustering to categorize the 10-K significant abnormal returns when negative news is announced by financial press. Controlling for reports into three risk culture classes. We find that a bank's negative attitude on “Leadership” cross-sectional differences, we verify that tone of communication, bank size, efficiency and credit and “Strategy” tends to have more impact on the bank's risk culture than other aspects, and risk impact on investor behavior. We also find that the journal announcing the news influences that the negative sentiment in 10-K reports speaks more than positive sentiment. In addition, stock market reaction. a strong constraining attitude on “Strategy” reflects the most information of future bank failure when compared with other risk culture aspects. Monday morning, June 12 48 Parallel Session B1 Parallel Session B1 49

consistent with the proposition of the “bank risk-taking channel” of monetary policy transmission, banks’ riskiness increases when monetary policy is eased. This result is robust when we adopt

B1 · Liquidity in banking and June 12 Monday afternoon, alternative measures of monetary policy and bank risk, and use different econometric methodologies. In addition, we find that bank risk-taking amid expansionary monetary policy is less con- financial markets spicuous in a more consolidated banking sector and when monetary policy is more transparent.

Chairman: Dan Galai Ke Wang Federal Reserve Board, USA Madhu Kalimipalli Wilfrid Laurier University, Canada Alex Sclip University of Udine, Italy Song Han Federal Reserve Board, USA Claudia Girardone Essex Business School, UK Alan Huang University of Waterloo, Canada Stefano Miani University of Udine, Italy “Information and Liquidity of Over-the-Counter Securities: Evidence from “Bank capital and liquidity: relationship and impact on CDS spreads. Public Registration of Private Debt” Evidence from Europe” ABSTRACT ABSTRACT The Rule 144A private debt represents a significant and growing segment of the U.S. bond market. This paper empirically analyses the relationship between bank capital and liquidity and the im- A large fraction of 144A debt issues carry registration rights and are subsequently publicly regis- pact of those connections on the market probability of default. Our sample consist of an unba- tered. We examine the effects on market liquidity of enhanced information on issuers’ financial lanced panel of EU Large banks with listed CDS contracts during the period 2005-2015, which al- conditions induced by the registration. We document three key results. (a) Following public regis- Room D6.018 - Ground Floor Time 14.15-16.20 D6.018 - Ground Floor Room low us to consider the impact of the recent financial crisis. We find that bank capital and funding tration of 144A debt, bid-ask spreads narrow, and more so for firms with higher ex-ante informa- liquidity risk as defined in Basel III have an economically meaningful bidirectional relationship. tion asymmetry, and for large sized trades; (b) trading activities are subdued following the public However, the effect on CDS spread is ambiguous. While capital has a large impact on CDS spread registration, based on both trading volume and frequency of trading, despite that registration changes, liquidity risk is priced only when falls below the regulatory threshold. Moreover, the inte- broadens the investor base; and (c) bond dealers tend to reduce their net positions following the raction between those variables depends on the overall level of risk. public registration. Our results are consistent with existing theories that financial transparency reduces information risk and thus improves market liquidity. However, more transparency appears to discourage participation of institutional investors as they lose the privilege of accessing the market and private information. Jean-Loup Soula University of Strasbourg, France Iftekhar Hasan Fordham University, USA Room D6.018 - Ground Floor Time 14.15-16.20 “Technical efficiency in bank liquidity creation” Adam Copeland Federal Reserve Board, USA ABSTRACT Cecilia Caglio Federal Reserve Board, USA This paper generates an optimum bank liquidity creation benchmark by tracing an efficient fron- Viktoria Baklanova U.S. Department of the Treasury, USA tier in liquidity creation (bank intermediation) and questions why some banks are more efficient Marco Cipriani Federal Reserve Board, USA than others in such activities. Evidence reveals that medium size banks are most correlated to “The Use of Collateral in Bilateral Repurchase and Securities Lending efficient frontier irrespective of their business models. Small (large) banks – focused on traditional Agreements” banking activities – are found to be the most (least) efficient in creating liquidity in on-balance sheet items whereas large banks – involved in non-traditional activities – are found to be most ABSTRACT efficient in off-balance sheet liquidity creation. Additionally, the liquidity efficiency of small banks We use unique data provided by U.S. affiliated securities dealers to study the use of collateral is more resilient during the 2007-2008 financial crisis relative to other banks. in bilateral repurchase and securities lending agreements securities. Market participants’ use of collateral differs substantially across asset classes: for U.S. Treasuries transactions we find the distribution of haircuts is predicted in part by the price distribution of the collateral, whereas the same is not true for equities transactions. Further, while most of the equities transactions in our Minghua Chen Southwestern University of Finance and Economics, China sample are each associated with a single haircut, most of the U.S. Treasuries transactions are Rui Wang Southwestern University of Finance and Economics, China each associated with more than one haircut. We relate these findings to the theory of collateral as an enforcement mechanism, and show this theory alone is not enough to explain the use of “Monetary Policy and Bank Risk-taking: Evidence from Emerging Economies” collateral in this market. We then turn to models of adverse selection which predict a negative Monday afternoon, June 12 ABSTRACT relationship between haircuts and interest rates, based on the use of collateral as a screening This paper addresses the impact of monetary policy on banks’ risk-taking by using the bank-level mechanism. We find this negative relationship for those trades where the securities dealers are panel data from more than 1000 banks in 29 emerging economies during 2000-2012. We find that, receiving U.S. Treasuries and delivering cash. 50 Parallel Session B2 Parallel Session B2 51

Wouter Heynderickx KU Leuven, Belgium Jessica Cariboni JRC - European Commission

B2 · Banking and financial June 12 Monday afternoon, Wim Schoutens KU Leuven, Belgium Bert Smits JRC - European Commission intermediation “European banks' implied recovery rates” ABSTRACT We examine recovery rates of the European banking sector. To this end, we employ information embedded in credit default swaps (CDS) with different levels of seniority. To estimate implied recovery rates, Chairman: Giovanni Barone-Adesi we extend the model of Schlafer and Uhrig-Homburg (2014) and include absolute priority violation. We fit the extended model and find that the implied recovery rates are much higher than the ones usually applied in pricing formulas. Since the implied recovery rates are estimated from traded instruments, we Federica Minnucci University of Roma Tor Vergata, Italy obtain recovery rates under the so-called pricing measure Q. They incorporate potentially risk premia University of Roma Tre, Italy Ornella Ricci and differ from physical or historical rates. We also attempt to estimate the impact of the new resolution Franco Fiordelisi University of Roma Tre, Italy regulation in the EU on implied recovery rates. When we compare implied recovery rates with historical “Market reaction to bail-in announcements” ones, we observe an underestimation of the recovery risk premium for senior debt and subordinated debt. However, the negative risk premium on subordinated debt has a larger magnitude. Our results are ABSTRACT relevant for pricing models of default-prone instruments and risk management practices that require After the recent global financial crisis, the European Union has introduced a common regulation for implied recovery and default rates. both banking supervision and crisis management, in order to preserve financial stability. More pre- cisely, the Single Resolution Mechanism (SRM) provides common resolution procedures in order to resolve banking crises in an orderly manner and to restore the viability of banking institutions. One University of Padova, Italy University of Padova, Italy Cinzia Baldan Francesco Zen Time 14.15-16.20 D6.005 - Ground Floor Room of the most relevant features of the new resolution mechanism concerns the introduction of a new Enrico Geretto University of Udine, Italy bail-in tool to manage bank crises, involving the burden of sharing for debtholders and depositors, together with shareholders. This paper aims at empirically assessing market reactions to policy an- “Enhancing the Bank Recovery Process: a Quantitative Metrics Implemen- nouncements introducing the new bail-in regime. Using an event study approach, we investigate tation to Italian Banks” whether investors perceive the new bail-in regime as credible, i.e., whether they believe in the re- ABSTRACT duction of State aids to banks. We also explore differences across several types of bank (i.e., whether We develop an empirical test with which we aim at revealing the conditions of the Italian listed banks located in the Eurozone or in the rest of the EU, systemically relevant or not, operating in PIIGS over the period 2005-2016, in terms of ability to survive to potential extreme losses, and the circumstanc- countries or not, in strong or weak financial conditions) in order to assess whether market discipline es under which the regulator should intervene (Goodhart and Segoviano, 2015). In particular, we calculate is in place or not. Results provide important indications to policy makers and also contribute to the the probability of distress of each bank by applying the Merton model; then we quantify the potential understanding of how future banking crises should be managed. losses according to the Vasicek (2002) approach. The probabilities of distress are then transformed into distances to default (DD), and the corresponding cumulative distribution of banks is used to identify Room D6.005 - Ground Floor Time 14.15-16.20

the Type I error (not intervening to close down the operation of a bank which subsequently would fail) and Type II error (closing a bank which would survive on its own). The “optimal” recovery trigger should Miguel Angel Duran University of Malaga, Spain minimize the combination of the two types of error, identifying an “optimal” amount of DD as criterion of Ana Lozano-Vivas University of Malaga, Spain early regulatory intervention. Juan Aparicio Miguel Hernandez University, Spain Jesus T. Pastor Miguel Hernandez University, Spain Małgorzata Iwanicz-Drozdowska Warsaw School of Economics, Poland “Do Charter Value and Supervision Row in the Same Direction? A Segmen- Erkki Laitinen University of Vaasa, Finland Arto Suvas University of Vaasa, Finland tation Analysis” “Paths of glory or paths of shame. How different are banks in Europe?” ABSTRACT Previous work suggests that the charter value hypothesis is theoretically grounded and empirically ABSTRACT supported, but not in a universal way. Accordingly, the aim of this paper is analyzing the relation This paper sheds new light on banks’ distress in Europe, with special attention paid to the period of the among risk taking, charter value, and supervision using an empirical research strategy that takes global financial crisis (GFC). Unlike in previous research we now investigate “distress” and “non-distress” into account the complexity of this relation. Specifically, we use we resort to CAMELS as a general paths of banks from 1 to 4 years prior to a distress event to test whether and how different they are. In framework that defines the different types of risk that would be taken into account by supervisory order to account for diversity of banks, we differentiate between commercial vs. cooperative and savings authority to assess the overall risk profile of banks and, the classification and regression trees tech- banks and we build up clusters to grasp their specifics. This approach allows us to outline guidelines for supervisors on how to detect banks of various profiles, generating higher risk of distress, several years be- nique is used as an innovative way of analyzing the relationship among risk/supervision and charter fore its occurrence. We use a balanced panel of data, applying factor and cluster analysis for extraction of value. Our sample covers the period 2005-2014 and consists of listed banks in the countries that distress processes and a logistic regression for distress prediction. We conclude that there are differences

Monday afternoon, June 12 have been part of the Eurozone since it came into existence, along with Greece. Liquidity, capital, between distress and non-distress banks which become more visible 1 and 2 years prior to the distress earning, and systematic risks seem to be the main types of risk as regards charter value, although event, offering a supervisory authority sufficient amount of time for an intervention. Liquid assets and the latter is not aligned with supervision for all these types of risk. loans to assets ratios are significant and stable predictors of banks’ distress for 1-4 year-time horizons. 52 Parallel Session B3 Parallel Session B3 53

Harald Kinateder University of Passau, Germany

B3 · Corporate finance and June 12 Monday afternoon, Jonathan Batten Monash University, Australia Péter Szilagyi Central European University, Hungary financial markets Niklas Wagner University of Passau, Germany “Time-Varying Energy and Stock Market Integration ABSTRACT Chairman: Lorne Switzer The temporal nature of integration in the stock-energy market relation is investigated, in the context of key Asian stock markets, using Markov switching technology. The energy portfolio Isabel Feito-Ruiz University of Leon, Spain comprises oil, coal and gas. Two regimes are identified: the first, accounts for over two-thirds of the sample from 1990-2015, and is a period of weak or no integration; the second, smaller group is “The influence of financial constraints on the takeover premium: internatio- a period of high integration. These regimes are stable and persist for long time periods. Analysis nal evidence” shows that energy and stock returns and variance tend to be asymmetric in the two regimes, with ABSTRACT higher degrees of integration during periods of asset market volatility. Stock markets fall during This paper examines the determinants of the takeover premium during crisis and non-crisis pe- periods of high integration and under some circumstances when energy prices rise. Exchange riod, taking into account the effect of financial constraints of both bidder and target firms. We rate volatility rather than exchange rate direction appears to also influence the degree of ener- consider M&As announced by European firms that acquire target firms worldwide during the pe- gy-stock market integration. riod 1996-2013, which allow us to compare the intensity of financial constraints in different legal

and institutional environments. Our main findings show that the acquisition of financially con- Time 14.15-16.20 D6.006 - Ground Floor Room strained target firms reduces the takeover premium, according to their less bargain power and In Anna Song Hankuk University of Foreign Studies, South Korea the benefits of accessing to external capital markets through the bidder firms. However, when James Carson University of Georgia, USA the bidder firms are financially constrained and the target firms are unconstrained, the takeover Thomas Berry Stoelze University of Iowa, USA premium is higher to compensate being acquired for these firms. Also, it is higher when the target “Are management of the loss reserve accrual and access to internal capital firms come from countries with a stronger legal and institutional environment, such as the United markets substitutes?” Kingdom or the United States, where the corporate control market is more active and competitive. To consider the possibility of codetermination of the acquisition of constrained target firms ABSTRACT A large stream of research suggests that property-liability insurers strategically manage earn- and takeover premiums, we employ propensity matching methods and the results are hold. ings via loss reserves. This literature has not, however, incorporated the role of internal capital markets and their potential interaction with managerial discretion in managing insurer earnings. Because unaffiliated insurers, by definition, are not able to utilize internal capital markets to off- Room D6.006 - Ground Floor Time 14.15-16.20 set possible shocks to earnings, we hypothesize that unaffiliated insurers therefore manage loss Lorne Switzer Concordia University, Canada reserves more aggressively than insurers who are members of an insurer group. Our results sup- Nabil El Meslmani Concordia University, Canada port this view in two ways. First, we find that unaffiliated insurers over-reserve more, on average, “The Idiosyncratic Volatility Puzzle and Mergers and Acquisitions Activity” than firms affiliated with a group. Second, we find that, relative to affiliated insurers, unaffiliated insurers over-reserve more in high profit years and under-reserve more in high loss years. Overall, ABSTRACT our results indicate that management of loss reserves and access to internal capital markets are This paper examines whether the puzzling negative relationship between idiosyncratic volatility substitute managerial tools. and next month performance is affected by the intensity of merger and acquisition (M&A) activity in the market. Our results show that the idiosyncratic volatility puzzle is stronger in periods of high M&A activity than in periods of low M&A activity. Further analysis shows that the negative rela- NEOMA Business School, France tionship between idiosyncratic volatility and next month performance is the strongest in the high Sebastien Lleo William Ziemba University of British Columbia, Canada M&A activity sub-period spanning from 1982-1989. In contrast, M&A activity does not explain the negative relationship between the common factor in idiosyncratic volatility (CIV) and next month “A Tale of Two Indexes: Predicting Equity Market Downturns in China” performance. M&A activity can in part explain the idiosyncratic volatility puzzle, but it does not ABSTRACT subsume the negative relationship between CIV exposure and firm returns. Predicting stock market crashes is a focus of interest for both researchers and practitioners. Sev- eral prediction models have been developed, mostly for use on mature financial markets. In this paper, we investigate whether traditional crash predictors, the price-to-earnings ratio, the Cy- clically Adjusted Price-to-Earnings ratio and the Bond-Stock Earnings Yield Differential model, Monday afternoon, June 12 predicts crashes for the Shanghai Stock Exchange Composite Index and the Shenzhen Stock Exchange Composite Index. 54 Parallel Session B4 Parallel Session B4 55

B4 · Macro risks, monetary policy Ivo Kuiper Tilburg University, Netherlands Monday afternoon, June 12 Monday afternoon, “Does interest rate exposure explain the low-volatility anomaly?” and interest rate risk ABSTRACT We show that part of the outperformance of low-volatility stocks can be explained by a premium for interest rate exposure. Low-volatility stock portfolios have negative exposure to interest rates, whereas the more volatile stocks have positive exposure. Incorporating an interest rate premium explains part Chairman: Clas Wihlborg of the anomaly. Depending on assumptions on segmentation of bond and equity markets, interest rate exposure explains between 20% and 80% of the unexplained excess return. We also find that the interest rate risk premium in equity markets exhibits time variation similar to bond markets. Giacomo Tizzanini Prometeia SpA, Italy Emanuele De Meo Prometeia SpA, Italy Lorenzo Prosperi Prometeia SpA, Italy Lea Zicchino Prometeia SpA, Italy “Forecasting macro-financial variables and evaluating monetary policy effectiveness through an International Data-Rich Environment Autore- Pietro Rossi Prometeia SpA, Italy gressive Model” “The Sensitivity of Interest Rate Products with Embedded Optionality in a ABSTRACT Negative Rate World” We propose a new data-rich environment model of the yield curve, the macro economy, monetary policies ABSTRACT and effective exchange rates for a panel of 11 countries: the iDREAM. The endogenous variables are obser- The appearance of negative forward and swap rates has sparked the need to look at shifted models, vable (short- and long-term interest rates, exchange rates) and latent factors (economic activity, inflation,

and the shift is then, by all means, a new parameter of the theory. The problem can be stated in the Time 14.15-16.20 D6.011 - Ground Floor Room monetary policy). Local economies are modelled in a FAVECM with weakly exogenous variables and then following way: we are free to feed our trading or risk management systems with volatility surfaces linked by means of a connectedness matrix estimated with a network approach. We use our framework given at any possible value of the shift $\lambda$ and we are just as free to compute prices with our to evaluate Conventional and Unconventional monetary policies and to do forecasts. We also investigate preferred shift. Transformation from one shift, let's say $\lambda_1$, to a second shift $\lambda_2$ the effects of helicopter money on the economy. We find that our framework is effective in forecasting is performed in a way to maintain unchanged the price of one contingent claim, let's say a floorlet. In long-term interest rates and economic activity; moreover, we find that Unconventional Monetary policies so doing, if we work with a very simple model as displaced diffusion, we have just one parameter to ad- are effective in sustaining domestic business cycles and that the global economy is more resilient to spil- just, namely the volatility, and we tune it so to preserve the floorlet price. Within these models it is not lover effects originating in the Euro Area than in the US. possible to preserve the $\Delta$ sensitivity as well. In this discussion we will neglect all together the issue that the adoption of a lognormal model and a volatility surface is already somewhat problem- atic when it comes to risk management. We will focus our attention on the fact that switching from Mariya Gubareva ISCAL–IPL, Portugal one shift to an other would produce a different risk-scenario and the apparently innocent procedure ISEG-UL, Portugal & UECE, Brazil Room D6.011 - Ground Floor Time 14.15-16.20 Maria Rosa Borges

to mark to model a portfolio with a different shift, will introduce a substantial discontinuity in the risk “Governed by the Cycle: Direct and Inverted Interest-Rate Sensitivity of profile of that same portfolio. We can prove that, for a substantial range of the ratio between strike and Emerging Market Corporate Debt” forward rate, the sensitivity is a monotone function of the shift. ABSTRACT An innovative approach to quantify interest rate sensitivities of emerging market corporates is proposed. Our focus is centered at price sensitivity of modeled investment grade and high yield portfolios to changes in the present value of modeled portfolios composed of safe-haven assets, which define risk-free interest rates. Our Jonathan Crook CRC University of Edinburgh, UK methodology is based on blended yield indexes. Modeled investment horizons are always kept above one Mindy Leow CRC University of Edinburgh, UK year thus allowing to derive empirical implications for practical strategies of interest rate risk management in “Exploring the Effects of Macroeconomic Variables on Credit Card the banking book. As our study spans over the period 2002 - 2015, it covers interest rate sensitivity of assets Delinquency and Default Behaviour” under the pre-crisis, crisis, and post-crisis phases of the economic cycles. We demonstrate that the emerging market corporate bonds both, investment grade and high yield types, depending on a phase of the busi- ABSTRACT ness cycle exhibit diverse regimes of sensitivity to interest rate changes. We observe switching from a direct Using a large dataset comprising of credit card loans from 2002 to 2010, and incorporating a mix of positive sensitivity under the normal pre-crisis market conditions to an inverted negative sensitivity during application variables, behavioural variables and macroeconomic variables, we use intensity models to distressed turmoil of the recent financial crisis, and then back to direct positive but weaker sensitivity under estimate probabilities of delinquency and default. We estimate these predicted probabilities for each new normal post-crisis conjuncture. Our unusual blended yield-based approach allows us to present theore- account for each type of transition over the duration time of the loan, and find interesting insights and tical explanations of such phenomena from economics point of view and helps us to solve an old controversy differences between groups of accounts, as well as over time. By segmenting the dataset by selected regarding positive or negative responses of credit spreads to interest rates. We present numerical quantifi- application variables, we find that the predicted probabilities of delinquency and default for different cation of sensitivities, which corroborate with our conclusion that hedging of interest rate risk ought to be groups of accounts have different trends. Next, we employ two methods of simulation. The first aims to Monday afternoon, June 12 a dynamic process linked to the phases of business cycles as we evidence a binary-like behavior of interest translate the predicted probabilities into predicted events at each time point, whilst the second gener- rate sensitivities along the economic time. Our findings allow banks and financial institutions for approaching ates transition rates for the test set based on empirical transition rates from the training set in order to downside risk management and optimizing economic capital under Basel III regulatory capital rules. compute the VaR for each transition distribution. 56 Parallel Session B5 Parallel Session B5 57

by adopting high risky projects, especially for the firms with weak fundamental, upon the arrival of illiquidity shocks. Empirically, using implied asset volatility and earning volatility as the proxies

B5 · Corporate finance June 12 Monday afternoon, for risk-taking preference and the dissemination of TRACE as a natural experiment, we document solid evidence to support the positive relation between liquidity risk and corporate risk-taking. and risk management Furthermore, by performing difference-in-difference analysis, we find that the impact of liquidity risk on corporate risk-taking preference is more pronounced for the firms with low profits, larger size and high rollover risk. Chairman: David Feldmann

Maggie Copeland Copeland Valutation Consultants, USA Didier Maillard Cnam & Amundi, France Thomas Copeland University of San Diego, USA “Tail Risk Adjusted Sharpe Ratio” Timothy Copeland New York University Stern, USA ABSTRACT “Revising Equity Valuation with Tail Risk” The Sharpe Ratio has become a standard measure of portfolio management performance, tak- ABSTRACT ing into account the risk side. In that framework, the consideration of risk is reduced to returns When VIX, a market index of volatility, increases, the firm’s response is to defer growth of invest- volatility. The Sharpe Ratio does not encompass extreme risk, especially on the downside. In this ment. Simultaneously, the expected time to ruin, E(T), shortens, causing the firm’s value to decli- paper, we provide four methods for constructing Tail Risk Adjusted Sharpe Ratios (TRASR), using ne more than commonly used valuation models suggest. We derive the characteristics of E(T), asymmetric measures of risk : semi variance, Value-at-Risk, Conditional Value-at-Risk (or Expect- and revise valuation models that assume cash flows are growing perpetuities. The Value Trap, ed Shortfall) and expected utility derived measures of risks. The adjustment translates into an Room D6.014 - Ground Floor Time 14.15-16.20 D6.014 - Ground Floor Room high growth stocks, and “Irrational Exuberance” can be explained by incorporating E(T) into the adjusted volatility, which allows us to keep the Sharpe Ratio format and to compare the impacts traditional valuation models. Empirical results of the sensitivities of 49 industry portfolios to the of the adjustments. For that, we use the Cornish-Fisher transformation to model tail risk, duly change in VIX are all significantly negative undiversifiable and could be proxies for E(T). controlling for skewness and kurtosis.

Benoit D'Udekem Université Libre de Bruxelles, Belgium Cecilia Aquila Swiss Finance Institute, Switzerland Giovanni Barone-Adesi Swiss Finance Institute, Switzerland “Do Star Analysts Shine in Opaque Industries? Evidence from European Banking” “How to shape risk appetite in presence of franchise value?”

Room D6.014 - Ground Floor Time 14.15-16.20 ABSTRACT ABSTRACT We assess the influence on stock prices of 5,150 changes in analyst recommendations on 80 Eu- We propose a model where risk appetite is determined by the interplay of the default put option ropean banks between 2005 and 2012. Unlike in other industries, recommendation changes made and the down-and-out call option, pricing the franchise value. The bank manager takes incre- by skilled analysts are not likelier to influence stock prices; those made by star analysts induce mental decisions maximizing his objective function, i.e. the sum of the two options, adjusting sharp negative price revaluations. We conclude that opaqueness impedes the ability of analysts jointly the level of leverage, assets and franchise value volatility and the policy rate. Risk appetite to influence investors and that stars contribute to uncovering hidden firm-specific bad news. Also, is given by the first order derivatives. Since the franchise value is non-observable, we consider stars maintain an influence by focusing on selected large, complex institutions that generate risk appetite also as the latent variable in a state space model. Due to the non-linear relation disagreement among analysts and by being apt at identifying mispricing. between the optimizing variables and risk appetite, that is determined by the default put option and the unobservable franchise value, priced through the down-and-out call option, we perform our filtering procedure through the extended Kalman filter. Its dynamic moves in line with the previous estimation and is persistent. We show that regulators should tune their recommendations Yuan Wang Concordia University, Canada, depending on the targeted cluster, since the driver of risk appetite alternates between the two Rui Zhong Central University of Finance and Economics, China options depending on the cluster and on the underlying variable considered and that the optimal Jingzhi Huang Penn State University, USA policy rate is higher with respect to the existing one in the last period. The modeling framework Huayi Tang Concordia University, Canada and the insights emerging from the cluster analysis are our major contribution to the existent literature. “Liquidity Risk and Corporate Risk-taking” ABSTRACT Monday afternoon, June 12 We construct a theoretical framework to investigate the impact of liquidity risk in the secondary corporate debt market on corporate risk-taking preference. Taking advantage of the closed-form solutions for debt and equity values, we find that equity holders choose to increase asset volatility 58 Parallel Session B6 Parallel Session B6 59

and behaviors most likely to increase their savings for the pension life. We apply the Theory of B6 · Behavioural finance and Planned Behavior (TPB) proposed by Ajzen (1985) that explains how human behavior is guided and provides a framework to explore the underlying beliefs that affect one’s behaviors. Our evi- June 12 Monday afternoon, dence highlights that the TPB predictors, pension knowledge, money management and the high- FinTech est level of financial literacy positively influence the intention to invest in a pension fund.

Chairman: Zvi Wiener Yimeng Yu Macquarie University, Australia Stefan Trueck Macquarie University, Australia Mariana Khapko University of Toronto, Canada “Investor Herding and Dispersing in the Renewable Energy Sector” Marius Zoican Paris-Dauphine University, France ABSTRACT “’Smart’ Settlement” We examine herding behaviour among investors in the renewable energy sector in the United ABSTRACT States. Over the last decade, the renewable energy sector has demonstrated significant growth Blockchain technology allows for flexible settlement of trades. We build a model of intermediated rates in the global economy. However, the sector has also shown variation in performance, with trading with search frictions and counterparty risk. On the one hand, longer trade-to-settlement periods of relatively high active returns as well as substantial underperformance. In this study, time increases counterparty risk exposure. On the other hand, liquidity improves since intermedia- we examine the relationship between the level of equity return dispersions - measured by the ries have more time to adjust inventories. Optimal time-to-settlement decreases in counterparty cross-sectional absolute deviation of returns - and the overall market return in the renewable risk and search intensity. However, with flexible time-to-settlement intermediaries specialize in sector. Using data from January 2000 to December 2015, we find significant evidence for excess Room D6.015 - Ground Floor Time 14.15-16.20 D6.015 - Ground Floor Room either high- or low-default risk contracts. Consequently, price competition is relaxed. Intermedia- return dispersion or so-called dispersing in the renewable energy sector. We also find evidence of ries earn rents, increasing in their (common) default rate due to larger scope for specialization. A asymmetric return dispersion, indicating a different impact of positive or negative market returns unique time-to-settlement for all trades in a given security improves welfare. on return dispersion. These results also hold when considering risk-adjusted returns for the renewable sector based on a CAPM or multifactor model. Investigating different regimes of oil price behaviour, we find some evidence of investor herding during periods when the oil price dropped significantly. However, before and after this period, there is clear evidence of dispersing in renew- Flavio Bazzana University of Trento, Italy able stocks. Our results indicate a quite unique behaviour of returns in the renewable energy Emiliano Marignoni University of Trento, Italy sector in comparison to other equity markets. Overall, investors in renewable energy stocks seem to disagree on their interpretation of large market movements, leading to an even higher return “A dynamic model of Bitcoin price formation” dispersion than predicted by standard asset pricing models. Room D6.015 - Ground Floor Time 14.15-16.20

ABSTRACT Bitcoin is now the focus of public opinion. Its highly unstable value makes it an instrument that, a risk-averse individual, finds it difficult to handle. This paper investigates on the main price drivers, deepening the herding phenomenon. It is then exposed a dynamic model of Bitcoin price forma- Moran Ofir IDC Herzliya, Israel tion, able to generate an estimate of the Bitcoin price at any instant of time. Zvi Wiener The Hebrew University of Jerusalem, Israel “Investor Sophistication and the Effect of Behavioral Biases in Structured Products Investment” Doriana Cucinelli University of Milano Bicocca, Italy ABSTRACT Paola Bongini University of Milano Bicocca, Italy We examine the effects of behavioral biases among professional investors vis-a-vis structured product (SP) investments. We outline key features embedded in SP and associate each with a “University students and retirement planning: It is never too early” specific behavioral bias. Our experiments’ results reveal that, to varying degrees, the examined ABSTRACT behavioral biases affect professional investors. As the experiment results show that even profes- In recent decades, the Italian pension system has experienced many changes, the most recent sional investors are not immune to behavioral biases, we try to ascertain whether there are certain of which is the so-called Fornero Reform (2012). In the wake of these reforms, individuals should personal characteristics that may influence the magnitude of bias within this group of profession- begin to consider their retirement very early in their life such that they can reduce the pension gap als. Using logit, probit and linear probability models, we show that the tested behavioral patterns between their final salary and the public pension they will receive. This study’s most important are so deeply rooted in human behavior that they are difficult to overcome by any of the personal goal is to investigate the main predictors of university students’ intention to invest in a pension characteristics we analyze. By demonstrating these behavioral biases’ impact on investors, our Monday afternoon, June 12 fund: an understanding of how young people perceive retirement planning is relevant for its policy results can support institution of specific regulation for SP, aimed at improving investor protection. implications. Our study can be used by regulators, financial educators, counselors and public in- The regulation should apply both to professional and nonprofessional investors. stitutions to increase the young’ propensity plan for their future and guide them towards attitudes 60 Parallel Session C1 Parallel Session C1 61

C1 · Banking and financial Reina Renard KU Leuven, Belgium “Ambiguity and Interbank Market Participation: Relationship and Tuesday morning, June 13 intermediation Transactional banking” ABSTRACT The interbank market (IBM) is a crucial source of funding for banks and in this paper it is shown that relationship banking improves IBM liquidity. Moreover, the central aim is to tackle the choice Chairman: Edward Altman between transactional and relationship banking in a setting where lending banks are either ambiguity or risk averse. Although building a relationships is costly, it allows to persuade the loan Christian Buschmann Frankurt School of Finance & Management, Germany officer to supply the excess liquidity to the IBM. It is shown that, for a certain gain, relationship banking is the cheaper type of banking, but this effect is less outspoken in a financial turmoil. The “Purchasing the Privilege? Why Banks Hold Sovereign Debt” effect of a risky and ambiguous environment is formalized by considering $CARA$-normal loan ABSTRACT officers that are either ambiguity- or risk-averse. While the latter know the probability distribution Sovereign bonds are a privileged asset class. Due to their assumed safety, which turned out to of the counterparty's creditworthiness, the former consider a range of distributions and have max- be a chimaera during the European sovereign debt crisis, banks hold a large portion of their total min-preferences. For relationship banking, these ambiguity-averse loan officers are less cautious assets in sovereign bonds. This paper analyses why banks hold sovereign bonds. In particular, we as it allows to acquire more precise information. Although the effect on participation is greater in ask whether banks' sovereign debt holdings are a result of "buying bonds" or "purchasing a privi- non-crisis times, IBM participation can be improved via relationship banking in times of financial lege". Using a newly combined data set, we find that banks' balance sheet items, e.g., size to GDP turmoil. A unique equilibrium is derived by imposing market clearing in the IBM and borrowers or loans over total assets, and non-balance sheet characteristics, such as being listed or having a prefer the type of banking that is less expensive for acquiring the necessary funding. Time 09.00-11.00 D6.018 - Ground Floor Room public owner, are import determinants of sovereign debt portfolios. While the literature suggests that a preferential regulatory treatment of sovereign debt and banks' equity cause banks to hold sovereign debt, we find no convincing evidence to support this notion. In contrast, we find a strong negative relationship between sovereign debt and loan portfolios. We conclude that sovereign Herbert Rijken Vrije University of Amsterdam, Netherlands debt is a substitute for loans. Hence, our analysis suggests that banks' investments in sovereign Edward Altman NYU Stern, USA debt is more buying bonds than purchasing a privilege. Janko Cizel Cornerstone Research, USA “The Information Content of Accounting Fundamentals Within and Across Countries” Alberto Mazzoleni University of Brescia, Italy ABSTRACT Elisa Giacosa University of Turin, Italy This paper studies the information content of bank accounting fundamental data in the predic- Room D6.018 - Ground Floor Time 09.00-11.00 Claudio Teodori University of Brescia, Italy tion of bank distress using an international sample of banks from 15 Western European countries Monica Veneziani University of Brescia, Italy and the U.S. during the financial crisis of 2007-12. We assemble an exhaustive and unique set of bank distress events, and model bank distress as a function of accounting-based fundamen- “General or industry-tailored insolvency prediction models?” tals, while controlling for country-year fixed effects, and the type of resolution in the distressed ABSTRACT entity. The analysis of our bank distress models reveals a substantial cross-country variation in The crisis of 2008-2012, a structural non-cyclical crisis, favoured the development of prediction mo- the ability of accounting fundamentals to discriminate between distressed and non-distressed dels and procedures aimed at prompt intervention in the event of signs of insolvency. In the light of banks within countries. We examine the extent to which the variation in informativeness and this framework, the paper aims to propose a methodology to define insolvency prediction models accuracy of accounting fundamentals is explained by proxies of country-specific bank disclosure which can be adapted in temporal and spatial terms, also taking account both of the firm’s field requirements and the enforcement thereof. We show that the association between accounting of business and the information needs of the stakeholders (for example the banks) which could fundamentals and bank distress is attenuated in jurisdictions with relatively lax bank disclosure use these models as alert models. The study, which is based on the model proposed by Altman, laws and their implementation. Accounting ratios, whose information value is the most sensitive is developed in two phases. First of all, assessment of the accuracy rate of Altman’s insolvency to the quality of regulatory disclosure include regulatory capital ratios, loan loss provisions, and prediction model in the main Italian business sectors. Secondly, development of new insolvency unreserved loan losses. The evidence in this paper supports the oft-voiced concern that excessive prediction models, with the aim of improving the model’s accuracy rate in the Italian context. The flexibility in financial reporting undermines the ability of accounting signals to accurately capture research was conducted on a sample of Italian SMEs, the most representative of the Italian entre- the underlying financial health of banks. Obliqueness of the distressed bank’s accounting signals preneurial fabric, whose financial statements for the period 2008-2013 were available. The sample makes such information less useful for investors and regulators, and thus has negative regulatory comprises 54,134 companies (53,206 non-failed and 928 failed). The analysis was carried out on implications. Tuesday morning, June 13 Tuesday the companies’ state of health in 2015. The models were applied in a four-year period (2011-2015), three-year period (2012-2015) and two-year period (2013-2015) prior to the crisis, which was observed in 2015. The results obtained are interpreted in accordance with the Stakeholder Theory. 62 Parallel Session C2 Parallel Session C2 63

C2 · Bond markets Alfred Lehar University of Calgary, Canada Tuesday morning, June 13 “Restructuring Failure and Optimal Capital Structure” ABSTRACT The ability of firms to successfully renegotiate their debt is a function of bankruptcy costs. In- creasing bankruptcy costs reduce creditors' payoff in bankruptcy court, increasing the incentive for debtholders to overcome frictions in the bargaining process and settle out of court. Since firms Chairman: Flavio Bazzana with high bankruptcy costs can restructure out of court, the bankruptcy costs are never realized in equilibrium and thus these firms take on more debt, contradicting the classical tradeoff theory. Thomas Matthys Vlerick Business School, Belgium Embedding multilateral bargaining with frictions into a dynamic capital structure model I find Stijn Ferrari National Bank of Belgium that optimal leverage is u-shaped in bankruptcy costs. Firms with medium bankruptcy costs Issam Hallak Joint Research Centre - European Commission might find it ex-ante optimal to write covenants to commit to enter renegotiations early where Rudi Vander Vennet Ghent University, Belgium renegotiations can still succeed. Firms with low bankruptcy costs will optimally have a concentrated debt structure while firms with high bankruptcy costs maximize ex-ante firm value with “Corporate Syndicated Loans as a Source of Private Information for dispersed debt. Interbank Markets” ABSTRACT Banks contemporaneously lend to each other (interbank loan) and co-lend to large corporations through syndicated loans. Recently, authors have presented evidence of the existence of lending Raffaele Giuliana NHH Norwegian School of Economics, Norway Time 09.00-11.00 D6.005 - Ground Floor Room patterns in interbank loan markets that are consistent with relationship lending theory. Yet, the “Bail-in’s Effects on Banks’ Bonds: Yields Spreads and Market Discipline. sources of private information in interbank markets remain unclear. We show that lending banks A Natural Experiment” may extract private information about the value of a borrowing banks' assets by participating in corporate loan syndicates. We use a large data set of the euro area interbank market and infor- ABSTRACT mation on syndicated loans and report that interbank borrowers who share a larger proportion The bail-in limits government support to banks by excluding equity and non-secured debt class- of their syndicated loan portfolio with an interbank lender obtain lower interbank spreads and es from rescue plans. I analyze the salient events regarding both the legislative process and the larger loans. However, sharing low-quality syndicated loans and high concentration of syndicated impositions of bail-in on specific distressed banks; I test if these indications of authorities’ com- loan sharing raises risk considerations which reduce the positive effects of private information mitment to bail-in were credible enough to drive a repricing of existing bonds. Heterogeneous and production. staggered difference-in-differences tests illustrate that positive (negative) indications of commit- ment amplified (reduced) the difference in yield between non-secured (i.e., bailinable) and secured (i.e., non-bailinable) bonds. Placebo tests suggest that generalized distresses do not drive these Room D6.005 - Ground Floor Time 09.00-11.00

results, showing that the yield spread between junior and senior bailinable debt does not react Paul-Olivier Klein University of Strasbourg, France to the events. A triple-differencing framework suggests that bail-in events increased investors’ incentives to incorporate a bank’s risk while pricing its securities, corroborating an improvement “Issuing Corporate Bonds: The Role of Legal Environment” of market discipline. ABSTRACT This paper appraises the impact of creditors’ rights and information on bond issues. I find that higher creditors’ rights and information ease the access to the bond market, increase the amount issued and reduce the maturity of the issuances. When considered together, the creditors’ information is the main determinant. I show that this effect is not uniform across firms: firms with lower level of agency costs and information asymmetries benefit the most of higher level of creditors’ rights and information. Tuesday morning, June 13 Tuesday 64 Parallel Session C3 Parallel Session C3 65

C3 · Quantitative methods in Péter Csóka Corvinus University Budapest, Hungary Jean-Jacques Herings Maastricht University, Netherlands Tuesday morning, June 13 risk management “An Axiomatization of the Proportional Rule in Financial Networks” ABSTRACT The most important rule to determine payments in real-life bankruptcy problems is the proportional rule. Many bankruptcy problems are characterized by network aspects and default may Chairman: Harald Benink occur as a result of contagion. Indeed, in financial networks with defaulting agents, the values of the agents' assets are endogenous as they depend on the extent to which claims on other agents Kehan Li Paris 1 Panthéon-Sorbonne University, France can be collected. These network aspects make an axiomatic analysis challenging. This paper Dominique Guegan Paris 1 Panthéon-Sorbonne University, France is the first to provide an axiomatization of the proportional rule in financial networks. Our two Bertrand Hassani Santander Bank, UK central axioms are impartiality and non-manipulability by identical agents. The other axioms are claims boundedness, limited liability, priority of creditors, and continuity. “Impact of multimodality of distributions on VaR and ES calculations” ABSTRACT Unimodal probability distribution has been widely used for Value-at-Risk (VaR) computation by investors, risk managers and regulators. However, financial data may be characterized by distribu- Ine Marquet KU Leuven, Belgium tions having more than one mode. Using a unimodal distribution may lead to bias for risk measure Jan De Spiegeleer KU Leuven, Belgium computation. In this paper, we discuss the influence of using multimodal distributions on VaR and Wim Schoutens KU Leuven, Belgium Time 09.00-11.00 D6.006 - Ground Floor Room Expected Shortfall (ES) calculation. Two multimodal distribution families are considered: Cobb's “Data Mining of Contingent Convertible Bonds” family and distortion family. We provide two ways to compute the VaR and the ES for them: an adapted rejection sampling technique for Cobb's family and an inversion approach for distortion ABSTRACT family. For empirical study, two data sets are considered: a daily data set concerning operational Data mining is an import new topic within the financial world. The detection of observations risk and a three month scenario of market portfolio return built with five minutes intraday data. which are different from the majority, called outliers, can be of interest for market analysts, risk With a complete spectrum of confidence levels from 0001 to 0:999, we analyze the VaR and the managers, regulators and traders. These exceptions might be caused by exceptional circum- ES to see the interest of using multimodal distribution instead of unimodal distribution. stances and potentially are requiring extra hedging or can be seen as trading opportunities. They could as well give regulators an early warning and signal for potential trouble ahead. First we explain and apply the new risk measure, called the Value-at-Risk Equivalent Volatility (VEV). The concept was introduced by the European authorities in the new PRIIPS regulation and needs to be Marius Sampid University of Essex, UK implemented for all structured products by 2018. This risk-measure is an extension of the classical Room D6.006 - Ground Floor Time 09.00-11.00 Haslifah Mohamad Hasim University of Essex, UK volatility measure by taking into account skewness and kurtosis. The measure works however in a one-dimensional setting. In this paper we illustrate outlier detection and the VEV concept on “A Bayesian approach to value-at-risk estimation incorporating student's-t CoCo bonds. CoCos are hybrid high yield securities who convert into equity or write-down if the innovations, copulas and extreme value theory” issuing financial institution is in a life-threatening situation. We observe extreme CoCo prices ABSTRACT when the underlying equity prices move. Further we want to detect outliers in the CoCo market In this paper, we propose a model for Value-at-Risk (VaR) estimation using Bayesian GARCH(1,1) taking into account multiple variables like the CoCo market returns and the underlying equity model with Student's-t innovations, copula functions and extreme value theory (EVT). Baye- return. Based on a multiple-dimension distance we can detect CoCos that are outlying compared sian GARCH(1,1) model that identifies non constant volatility over time is combined with copula to previous time periods but taking into account extreme moves of the market situation as well. functions and extreme value theory (EVT) to formulate the Bayesian GARCH(1,1) copula-EVT model used to estimate the level of risk on financial asset returns. VaR models constructed using vine copulas outperform traditional GARCH (1,1) models. However, back-testing results reject the model to be too conservative in favor of VaR models constructed using Archimedean and Elliptical copulas. Tuesday morning, June 13 Tuesday 66 Parallel Session C4 Parallel Session C4 67

C4 · Banking system and Cornelius Kurtz European Central Bank, Germany

Julian Sester University of Freiburg, Germany Tuesday morning, June 13 Eva Lütkebohmert University of Freiburg, Germany Basel III “Calculating Capital Charges for Sector Concentration Risk” ABSTRACT We propose a methodology to quantify capital charges for concentration risk when economic Chairman: Michael Gordy capital calculations are conducted within a multi-factor Merton framework. The concentration charge is defined through the impact of the sector on the portfolio loss curve. We propose two Catherine Koch Bank for International Settlements, Switzerland ways of measuring this effect: The first method relies on Monte Carlo simulation but has the Christoph Basten Bank for International Settlements, Switzerland advantage of not requiring the calibration of additional parameters, and hence is easily ap- Benjamin Guin Bank of England, UK plicable for banks which perform simulations. The second approach is a tractable, analytical formula which provides an efficient approximation to the first method. The proposed approach “The Demand and Supply of Mortgage Rate Fixation Periods. Managing implies a simple and intuitive allocation of the resultant capital charge and is highly suitable for Interest Rate Risk and Credit Risk in a Low Rate Environment” calculation of capital charges for sector concentration risk under Pillar 2 of the Basel regulatory ABSTRACT framework. We disentangle the demand and supply determinants of mortgage rate fixation periods. Our unique dataset features offers from multiple banks for each individual mortgage request. We

show that households respond to the relative cost of different fixation periods. However, we also Time 09.00-11.00 D6.011 - Ground Floor Room find that banks drive the empirical evidence that more vulnerable households are associated with Antonio Bayeh University of Grenoble Alpes, France longer fixation periods. This finding contrasts with the existing literature which interprets this as Radu Burlacu University of Grenoble Alpes, France the households’ choice. We demonstrate how banks influence fixation periods through several “The risk-and-return effects of US banking competition and securitization” channels to trade off interest rate risk against credit risk, and we find that banks’ choices depend on both bank and household characteristics, as well on the interbank market environment. ABSTRACT Using a sample of 104,771 bank-year end data of the US commercial banks from 1999 to 2013, we investigate the impact of bank competition, securitization as well as the joint interaction between both of them on bank risk and profitability. Our main findings show that the Lerner index, Janko Cizel Cornerstone Research, USA a measure of market power, has a negative impact on bank risk and a positive impact on bank Edward Altman NYU Stern, USA profitability. We also find that securitization has a positive impact on bank profitability prior to the Herbert Rijken Vrije University of Amsterdam, Netherlands recent financial crisis. The interaction between competition and securitization is found to have a Room D6.011 - Ground Floor Time 09.00-11.00 negative impact on bank profitability and a positive impact on bank risk prior to, during and after “Assessing Basel III Capital Ratios” the crisis. Our paper emphasizes empirically the importance of the regulations restricting the re- ABSTRACT cent expansion of bank competition, for instance the Dodd-Frank Act, and provides new insights This paper focuses on the capital-related initiatives of Basel III and empirically examines three into the effects of competition and securitization on banks’ risk and return. sets of assumptions that are implicit in Basel III capital regulation: (1) distress-relevance of bank regulatory capital, (2) poor loss-absorption properties of intangibles, such as deferred tax assets (DTA) and goodwill, and (3) the backstop role of risk-insensitive regulatory capital measures. Our key finding is on the information value of Basel risk weights (RW) in the context of predicting bank distress. Specifically, we show that the association between RWs and bank distress is statistically insignificant in the subset of large banks that predominately apply the Internal Rating Based (IRB) models, while it is positive and statistically significant for the small non-IRB banks. This finding is consistent with a concern that the IRB capital regulation may be subject to issues that hamper the association between banks’ reported and real risks. Tuesday morning, June 13 Tuesday 68 Parallel Session C5 Parallel Session C5 69

C5 · Financial markets, Stephen Figlewski NYU Stern, USA “An American Call is Worth More than a European Call” Tuesday morning, June 13 and derivatives ABSTRACT An easily proved theoretical principle in option pricing is that an American call option should never be exercised early, except possibly just before an ex-dividend date. This result depends on the ability to liquidate an option position, European or American, for its theoretical value (the Chairman: Menachem Brenner European call price) in the market. But this is normally impossible in a real world option market, where the best bid for an in-the-money short maturity call is generally below intrinsic value even Ruslan Goyenko McGill University, Canada for an option on a liquid stock. An American option can always be exercised to recover intrinsic value while a European call must be liquidated at the best available bid in the market. If a n “Liquidity Provision and Adverse Selection in the Equity Options Market” investor has to exit an American call position before maturity, exercise can often return more than ABSTRACT selling at the market's best bid. This paper derives the value of liquidity-based early exercise in The paper studies information content of options order flows separated in customer-initiated closed-form, as a function of the bid-ask spread. An illustrative example using a small amount (retail or institution) and firm initiated (proprietary desks of institutions) orders. Prop-desks are of market data indicates that the value of Americanness can be small, but non-negligible, for the implicit market makers in options market and provide liquidity to customer order flows, and espe- most actively traded options whose spreads are very tight. For less active options the premium cially after Dodd-Frank regulation took place. Customer order flows are largely dominated by for liquidity-based early exercise can easily exceed the theoretical value of the early exercise op- disagreement trades except for out of the money options where prop-desks lose money while tion for an American put or a call on a typical dividend-paying stock. providing liquidity. A simple put-call volume ratio reflecting prop-desk liquidity supply to nega- Time 09.00-11.00 D6.014 - Ground Floor Room tively informed customer order flows is a robust negative predictor of stock returns. Stocks with the high put-call volume ratios underperform those with the low ratios by 14 bps the following week after standard risk-adjustments. The results help to reconcile often controversial literature Sriya Anbil, Federal Reserve Board, USA on informed, uninformed and disagreement trading in options market, as well as how the options Heather Tookes, Yale School of Management - Yale University, USA market helps alleviating short-selling constraints in the stock market. Alessio Saretto, University of Texas at Dallas, USA “Does hedging with derivatives reduce the market's perception of credit risk?” Jongsub Lee Warrington College of Business, USA ABSTRACT Marti G. Subrahmanyan NYU Stern, USA Risk management is the most widely cited reason that non-financial corporations use deriv- Jennifer Conrad Kenan Flager Business School, USA atives. If hedging programs are effective, then firms using derivatives should have lower credit Room D6.014 - Ground Floor Time 09.00-11.00 Söhnke Bartram Warwick Business School, UK risk than those that do not. We exploit a unique, hand-collected dataset to study the impact of non-financial corporations' use of financial derivatives on credit default swap (CDS) spreads. All “Credit default swaps around the world: Investment and financing effects” else equal, we find that CDS spreads are lower only for firms with derivatives that are designated ABSTRACT accounting hedges. Surprisingly, we find that firms with derivatives positions without a hedge We analyze the impact of CDS introduction on real decision-making within the firm, taking into accounting designation (typically higher basis risk positions) have higher CDS spreads than firms ac-count differences in the local economic and legal environment of firms. We extend the model that do not hedge with derivatives at all. We do not find evidence that these non-designated of Bolton and Oehmke (2011) in order to consider uncertainty in whether actions taken by the refe- positions are associated with future credit realizations, as captured by changes in either credit rence entity will trigger CDS obligations. We test the predictions of the model in a sample of more ratings or CDS spreads. We examine alternative explanations for the results and find evidence than 56,000 firms across 50 countries over the period 2001-2015. We find substantial evidence that is most consistent with a market penalty for high basis risk positions when overall market that the introduction of CDS affects real decisions within the firm, including leverage, investment, conditions are poor. and the risk of the investments taken by the firm. Importantly, we find that the legal and market environment in which the reference entity operates has an influence on the impact of CDS. The effect of CDS is larger where uncertainty regarding their obligations is reduced, and where they mitigate weak property rights. We also find that CDS are more likely to be introduced on firms that are headquartered in countries with weaker creditor rights, a stronger orientation toward bank financing, and lower levels of ownership concentration. Tuesday morning, June 13 Tuesday 70 Parallel Session C6 Parallel Session C6 71

two distinct assets toward providing ex ante full risk intermediation and sharing. We derive pricing C6 · Quantitative methods in results in incomplete markets using a two-step procedure to incorporate market imperfections, and then derive the hedging allocation solution using a systems integration approach. The resul- Tuesday morning, June 13 ting structural models optimally allocate these two classes of hedging assets relative to default risk management risk, interest rate risk, basis risk, differential markups, catastrophe arrival intensity and severity, as well as other reinsurance and cat bond characteristics, and make definitive statements about the economics of the markets through a simulation analysis. Chairman: Michel Dacorogna

Imre Kondor London Mathematical Laboratory, UK Andrea Mantovi University of Parma, Italy Giulio Tagliavini University of Parma, Italy “Analytic solution to variance optimization with no short positions” “Liquidity cognition and limits of arbitrage” ABSTRACT The variance of a portfolio of independent, but not identically distributed, returns is optimized ABSTRACT with a ban on short positions, in the high-dimensional limit where the number N of different An inquiry about the limits of arbitrage connected with liquidity cognition is set forth. The hierar- assets in the portfolio and the sample size T are large with their ratio r=N/T finite. The no-short- chy of money (Mehrling, 2012b; Pozsar, 2014) is shown to provide sharp insights on the emergence selling constraint acts as an asymmetric l_1 regularizer, setting some of the portfolio weights to of endogenous constraints which may limit the strategic space of professional arbitrageurs in zero and keeping the out-of-sample estimator for the variance bounded, avoiding the divergence empirically relevant contexts. A case study (Mitchell and Pulvino, 2012) sets the stage for our present in the non-regularized case. However, the ban on short positions does not prevent the theoretical proposal. Our approach is conjectured to represent a fruitful line of progress for be- Time 09.00-11.00 D6.015 - Ground Floor Room phase transition in the optimization problem, only shifts the critical point from its non-regularized havioral finance. value of r=1 to 2, and changes its character: at r=2 the out-of-sample variance stays finite and the in-sample variance vanishes, while the sensitivity of the optimal portfolio weights to changes in the returns diverges. Numerical simulations support the analytic results for N/T < 2 in the large N limit. Numerical experiments on finite size samples show that above r=1 solutions with zero Stefano Bonini Accenture SpA, Italy in-sample variance start to arise, their probability of appearance increasing as r approaches 2, Giuliana Caivano Accenture SpA, Italy steeply rising around r=2, and becoming nearly one beyond r=2. A closed formula obtained for “A modern framework for Probability of Default Calibration” this probability shows that in the large N limit the transition becomes sharp. The zero in-sample variance solutions are not legitimate solutions of the optimization problem, as they are infinitely ABSTRACT sensitive to any change in the input parameters. The no-short constraint, with prohibiting large A typical feature of PD models across countries is that no information is commonly used for compensating positions, takes care of the length fluctuations of the optimal weight vector, but taking into account macroeconomic variables. In this context the use of models that reflect the Room D6.015 - Ground Floor Time 09.00-11.00 does not eliminate the large fluctuations of its direction. We also calculate the distribution of the average long run historical default rate let stabilize capital ratios and optimize capital manage- optimal weights over the random samples and show that the regularizer preferentially removes ment policies. Given the relevance of final PDs (PD curve) in reflecting the economic conditions the assets with large variances, in accord with one's natural expectation. we propose a new structured calibration approach based on average long run historical default rate (so called Central Tendency, CT) linked with the economic scenario in order to neutralize the volatility effects deriving from changes in macroeconomic scenario in final PD curve. We here propose a new methodological framework that combine the main findings of other studies on Jack Chang California State University, USA this topic (for the most part based on LDP) applying it on real data both on High Default portfolios Carolyn Chang California State University, USA (Corporate and Retail) and LDP (Large Corporate) belonging to a top tier European Bank (under Min Teh Yu National Chiao Tung University, Taiwan Single Supervisory Mechanism). “Hedging the impact of climate change in the catastrophe space” ABSTRACT Unprecedented increases in climate change-induced extreme loss events have raised major concerns about the inadequacies of catastrophe risk financing in the insurance/reinsurance industry. An insurer’s top-to-down catastrophe risk financing allocation starts with the tradeoff between how much capital to hold and how much hedging to purchase. Within the total hedging need the allocation focuses on optimum combination of the traditional reinsurance contract and the Tuesday morning, June 13 Tuesday capital-market-based insurance-linked securities. By constructing a two-agent sequential optimization framework to mimic the economics of the reinsurance/insurance markets, we show how NPV-maximizing reinsurers and hedging cost-minimizing insurers would optimally allocate these 72 Parallel Session D1 Parallel Session D1 73

market concentration (for a given number of funds) leaves more unexplored investment oppor- D1 · Corporate finance tunities and allows managers to more efficiently use industry resources, making marginal mana- Wednesday morning, June 14 gerial effort more productive in creating gross alphas. However, with higher market concentration, managers can get higher compensation for their effort, causing a higher opportunity cost of ef- and financial markets fort. We find that in equilibrium, higher market concentration levels induce higher net alphas and AFMI size (the ratio of assets under active management to total wealth) if and only if gains from better investment opportunities exceed the consequences of higher managerial costs. We specialize the model to allow endogenous concentration levels and, using the Herfindahl-Hirschman Chairman: Giorgio Bertinetti and other indices, empirically study its key predictions in the United States equity AFMI in the last four decades. We find that, on average, AFMI net alphas and AFMI size increase with market Manuel Rodriguez Lopez ABANCA, Spain concentration. Given the current low market concentration in the U.S. AFMI and with no change in Carlos Piñeiro Sanchez University of A Coruña, Spain managerial productivity/effort opportunity costs, an increasing market concentration is likely to Pablo de Llano Monelos University of A Coruña, Spain increase both AFMI net alphas and size. We also look at equilibria with colluding fund managers and examine AFMI’s direct benefits. “IT Investments and Financial Performance, Revisited: the Bankruptcy Per- spective” ABSTRACT Lora Dimitrova University of Exeter, UK Sapnoti Eswar University of Cincinnati, USA This study examines whether IT resources and capabilities affect the risk of bankruptcy of SMEs. “Does Financial Innovation Enhance or Inhibit Real Innovation?” Drawing on previous literature on bankruptcy and the resource-based view of the firm (RBV), we offer conclusive evidence of the influence of IT resources on financial health, as measured by the ABSTRACT odds of filing for bankruptcy within a certain period of time. Flexibility, Internet-related abilities, We investigate whether simplifying firms' access to derivatives increases the quantity and quality Time 08.30-10.35 D6.018 - Ground Floor Room cooperation/networking, and management skills are consistent with huge reductions in the risk of firms' real innovation, measured with patent based metrics. We employ a difference-in-differ- of bankruptcy, implying that they are high value resources. Our results also stress that companies ences specification, using the 1987 introduction of the International Swaps and Derivatives As- should pay attention to the development of bundles of complementary IT assets and capabilities, sociation (ISDA) Master Agreement as an exogenous change in the market for over-the-counter to create synergies and leverage IT resources. From a methodological point of view, we reveal new (OTC) derivatives. The treatment firms are firms located close to financial centers, the control links between organization literature and previous research on bankruptcy; our innovative measu- are firms located far away. We find that the use of derivatives affects positively the level of real re of performance can be a valuable tool for future research in both fields. innovation. Risk management decreases the variability of firms' cash flows and relaxes financial constraints leading to more investment in R&D, and more innovation.

Arpit Gupta NYU Stern School of Business, USA Room D6.018 - Ground Floor Time 08.30-10.35 Kunal Sachdeva Columbia Business School, USA Maxim Moroz Baltic State Technical University, Russia

“Skin or Skim? Inside Investment and Hedge Fund Performance” “Risk of delays the updates fixed assets in corporate finance”

ABSTRACT ABSTRACT We document novel patterns of insider investment in hedge funds and explore the implications The article examines the risk of delays the updated fixed assets due to difference between value for fund returns. Using a comprehensive and survivor-bias free dataset of U.S. hedge funds, we and production cost of fixed assets. Was done theoretical research influencing different factors of find that funds with greater investment by insiders are smaller and outperform funds with less the depreciation of useful life of fixed assets. Formed an innovative approach to defense risk of "skin in the game" on a factor-adjusted basis, consistent with a role for capacity constraints in non correct using fixed assets which base on estimation and of the depreciation and survival fixed driving hedge fund performance. Our results have implications for optimal portfolio allocations of assets. Proposed a method for adjusting the useful life of tools using depreciation for mitigate risk institutional investors and models of delegated asset management. of non correct amount of depreciation fixed assets. Argued effective of changes in methodology depreciation on example financial statements and ration EBITDA, CAPEX and other financial ratios. Researched influence depreciation on Enterprise Risk Management, including operation and credit risk sector. The article reveals the difference between the tax and economic depreciation of fixed as- David Feldman University of New South Wales, Australia sets. Formed a theoretical justification of various influences on the growth of economic depreciation Konark Saxena University of New South Wales, Australia of the country where the fixed assets operates and provide sustainable growth rate for firms. Article Jingrui Xu University of New South Wales, Australia generates estimation of influence differences between the tax and economic depreciation on the “Is the active fund management industry concentrated enough?” company's growth. Developed theoretical mechanisms for estimate economical depreciation and set her influence on the capacity for renewal of fixed assets. Formed methodology of function mech- ABSTRACT anism the implementation of reinvestment with condition identity between tax and economical de- We study the effects of market concentration levels on the active fund management industry preciation of fixed assets. The article analyzes the profit which can be obtained from instruments of Wednesday morning, June 14 Wednesday (AFMI). We introduce a model of an AFMI equilibria in which size, performance, and effort are labor which consists of depreciated. Developed a theory for estimate repair, replacement tools that endogenously determined under a continuum of exogenous market concentration levels. Higher includes in calculation of depreciation of work tools. 74 Parallel Session D2 Parallel Session D2 75

D2 · Banking and risk Małgorzata Olszak University of Warsaw, Poland Wednesday morning, June 14 Sylwia Roszkowska University of Łódź, Poland Iwona Kowalska University of Warsaw, Poland taking “Macroprudential policy instruments and procyclicality of loan-loss provisions – cross-country evidence” ABSTRACT Chair: Linda Allen We analyze the effectiveness of various macroprudential policy instruments in reducing the procyclicality of loan-loss provisions (LLPs) using individual bank information from over 65 countries Valerio Pesic La Sapienza University, Italy and applying the two-step GMM Blundell-Bond (1998) approach with robust standard errors. Our Giovanni Ferri LUMSA University. Italy research identifies several new facts. Firstly, borrower restrictions are definitely more effective in reducing the procyclicality of loan-loss provisions than other macroprudential policy instruments. “IRB Model Regulatory Arbitrage and Profitability at European Banks” This effect is supported in both unconsolidated and consolidated data and is robust to several ABSTRACT robustness checks. Secondly, dynamic provisions, large exposure concentration limits and taxes Risk Weighted Assets (RWAs) dispersion across similar banks evokes regulatory arbitrage via IRB on specific assets are effective in reducing the procyclicality of loan-loss provisions. And finally, we models maneuvering. Focusing on profitability distortions, we use yearly data assembled for 239 find that both loan-to-value caps and debt-to-income ratios, are especially effective in reducing European banks over 2007-2013. We show that a significant link between lower RWAs and higher the procyclicality of LLP of large banks. Off-balance-sheet restrictions, concentration limits and RoE emerges only for the banks employing IRB models more intensely. Moreover, splitting RWAs taxes are also effective in reducing the procyclicality of LLP of large banks. Dynamic provisions into a systematic component depending on the assets share a bank has shifted to IRB and its reduce the procyclicality of LLP independently of bank size. orthogonal component we find that only the latter affects RoE levels. Thus, we conclude that Time 08.30-10.35 D6.005 - Ground Floor Room regulatory arbitrage via IRB model calibration significantly affects reported profits at European banks. Katharina Sauter Zeppelin University, Germany Mark Mietzner Zeppelin University, Germany “On the persistence of relationship banking: Evidence from the corporate Angela Gallo Cass Business School, UK perspective” Min Park University of Exeter, UK ABSTRACT “Do borrowers benefit from lenders’ access to (simple) securitization?” German SMEs rely almost exclusively on bank loans as their most important external financing Room D6.005 - Ground Floor Time 08.30-10.35 ABSTRACT source. However, the recent economic and financial crisis left SMEs with severe financing con- In this paper, we test whether the benefits that lenders derive from (simple format-) securitization straints and considerably deteriorated firm trust in the German banking sector. This develop- are transferred to corporate borrowers when lenders are under idiosyncratic liquidity shock. We ment is especially striking given the traditionally close financing relationships between SMEs and expect that, when lenders experience unexpected liquidity problem, liquidity that can be raised banks. Since the value that firms assign to their bank-relationship possibly weakened over time, from securitization will allow securitizing lenders to lend to borrowers in a more stable manner: this paper investigates today's value and nature of relationship banking from a SME's perspective. less severe decrease in the loaned amount, less dramatic changes in the loan conditions repre- Analyzing a unique and comprehensive dataset obtained via an industry survey among German sented by covenants, and a more continuous relationship with their borrowers. Using the data on SMEs, we find that relationship banking provides value to SMEs. Moreover, trust in a firm's main US syndication loan market, we test these effects in the pre-crisis period to avoid the influence bank plays an important role in establishing a strong and close relationship that is beneficial to of other crisis-related factors on banks’ decision to securitize (i.e. complex CDO, monetary policy, lenders by reducing the risk of credit rationing and the cost of credit. Thus, establishing a lending regulatory capital arbitrage, demand for collateral) and contribute to the current debate on re- relationship based on trust improves SMEs' access to finance at more favorable terms. vitalization of the securitization market conditional on that its structure is kept simple, standard and transparent. Based on a diff-and-diff estimation, we find that firms are indeed likely to bor- row larger amount from securitizing lenders than from non-securitizing lenders in distress. We also find that borrowers are imposed less strict covenants when their loan is originated by securitizing lenders. We find very weak or no evidence that the lending relationship is more persistent with securitizing banks. Overall, our results support that banks’ securitization has implicit benefits to corporate borrowers when it is based on a simple structure as it used to be before the build-up of complicated securitization that contributed to the crisis. Wednesday morning, June 14 Wednesday 76 Parallel Session D3 Parallel Session D3 77

D3 · Risk management in Changjun Lee Hankuk University of Foreign Studies, South Korea Wednesday morning, June 14 Hyunglae Jeon KAIST, South Korea “Do the Actively Managed Mutual Funds Exploit the Stock Market financial markets Mispricing?” ABSTRACT Constructing a proxy for mispricing with the fifteen well-known stock market anomalies, we Chairman: Giampaolo Gabbi examine whether actively managed equity mutual funds exploit mispricing. We find that, in the aggregate, mutual funds over-weight the over-valued stocks and under-weight the under-val- Rui Zhong Central University of Finance, China ued stocks relative to passive benchmark. We show that this phenomenon is explained by invest- Jinyu LiuTsinghua University, China ment constraints and agency issues of fund managers. In addition, we find that mutual funds Dragon (Yongjun) Tang Hong Kong University with the highest weights in under-valued stocks outperform those with the highest weights in over-valued stocks by the annualized four-factor alpha of 2.99% (t =2.56). Overall, our findings “CDS Trading and Stock Price Crashes” indicate that underperformance of mutual funds is related with adverse allocation to anomalies’ ABSTRACT implied mispricing. This study investigates the externality of CDS trading on the likelihood of stock price crashes in the future in U.S. during a period from 1996 to 2014. We document a significantly negative influence of CDS trading on future stock price crash risk. Such negative relation is robust after using a variety of approaches to mitigate possible endogeneity concerns. Further, we document that ma- Zsuzsa Huszár National University of Singapore nagers increase information revelation by disseminating more frequent voluntary EPS forecasts Zorka Simon University of Mannheim, Germany Time 08.30-10.35 D6.006 - Ground Floor Room and reduce the usage of discretionary accruals to manage earnings after the introduction of CDS “The Liquidity and Welfare Implications of the Securities Lending Market for contracts. These empirical evidences support the argument that the inception of CDS trading di- European Treasuries” sciplines manager to disclose more private information in order to mitigate adverse selection problem due to information asymmetry across financial markets. Specifically, Additionally, we find ABSTRACT that related option trading weakens the negative impact of CDS trading on stock price crash risk. In the ultra-low interest rate environment, public and private European pension funds are strug- gling because they are mandated to maintain large Treasury holdings. In this study, we document a new channel for convenience yields in Treasuries, arising from securities lending market activities. We show that the potential income from securities lending in an active securities lending Sol Kim Hankuk University of Foreign Studies, South Korea market is important in understanding the cross-sectional variation in German Treasury Yields. Room D6.006 - Ground Floor Time 08.30-10.35 Suk Joon Byun KAIST, South Korea We construct securities lending benchmark indices for the different maturities, and show that our Dong Woo Rhee Asia Development Bank, South Korea indices can provide material information about future auction outcomes, and also able to predict future yields in the secondary market. Overall, we document the rising importance of securities “Is It Important to Consider the Time-to-Maturity for Ad Hoc Black and lending for pension funds and insurance firms to optimize fund allocation and to generate addi- Scholes Procedures?” tional income from fully indemnified assets. ABSTRACT There are two ad hoc approaches to Black and Scholes model. The “relative smile” approach treats the implied volatility skew as a fixed function of moneyness, whereas the “absolute smile” approach treats it as a function of the strike price. Previous studies reveal that the “absolute smile” approach is superior to the “relative smile” approach as well as to other sophisticated models for pricing options. We find that the time to maturity factors improve the pricing and hedging performance of the ad hoc procedures and the superiority of the “absolute smile” approach still holds even after the time to maturity is considered. Wednesday morning, June 14 Wednesday 78 Parallel Session D4 Parallel Session D4 79

D4 · Banking system and financial Michael Koetter IWH Halle, Germany Wednesday morning, June 14 Thomas Krause IWH Halle, Germany Lena Tonzer IWH Halle, Germany regulation “The political economy of the European banking union: Transposition delays and bail-in threats” ABSTRACT Chair: Rossella Locatelli As a response to the financial crisis, the regulatory framework of the European banking system has been subject to a wide range of changes. To safeguard financial stability and harmonize Claudia Curi Free University of Bozen, Italy regulation across countries, key changes regarding banks’ supervision, resolution and restructur- Maurizio Murgia Free University of Bozen, Italy ing, as well as deposit insurance have been implemented through directives of the European Commission. However, most countries delay the transposition of directives. In this paper, we first “Divestitures and the financial conglomerate excess value” analyze what are the reasons therefore. Our findings suggests that transposition delays increase ABSTRACT in countries with less stringent regulation and supervision, more political parties, and weaker insti- We find that divestitures have an impact on financial conglomerate valuation and contribute tutions. In contrast, the state of the banking system or the economy are of less importance. Sec- to reduce the conglomerate discount. We exploit a unique sample of the world largest financial ond, we ask whether the new rules are credible within the banking system by analyzing responses conglomerates from 15 countries and we track their largest asset sales over the years 2005-2013, in banks’ costs of capital after the implementation of the bank recovery and resolution directive. which encompasses the two last financial crises (US subprime lending 2008-2009 and European The results suggest that market participants’ expectations about increased financial stability sovereign debt 2010-2011). Sales of commercial and investment banking assets have the stron- balance bail-in threats, whereas differences emerge between equity and debt holders.

gest impact on excess value. Selling assets unrelated to financial sector has a significant effect Time 08.30-10.35 D6.011 - Ground Floor Room on conglomerate excess value during years of financial crises. This paper results support the view that financial conglomerates might lack sufficient economies of scope and divesting even financial service assets could be value-enhancing. This study has implications both for the incentives Elena Cubillas CUNEF, Spain to shareholders to downsize financial conglomerate assets and for regulators to address issues Carlo Chiarella CUNEF, Spain related to financial stability. Nuria Suarez CUNEF, Spain “Bank Rights Issues in Europe: A Coercive Recapitalization Tool?” ABSTRACT Peter Cincinelli University of Bergamo, Italy In this paper we study the announcement effects of 103 rights issues by 61 listed banks from 20 Room D6.011 - Ground Floor Time 08.30-10.35 Domenico Piatti University of Bergamo, Italy European countries during the 2006-2012 period. We find that abnormal stock returns on rights announcements for European banks are significantly more negative than for public offerings, “Non Performing Loans, Moral Hazard & Supervisory Authority: the Italian consistent with the hypothesis that bank experiencing financial problems could be using rights is- Banking System” sues as a coercive tool to increase capital. We find that the most negative announcement effects ABSTRACT are found for larger and lower capitalized banks, and for issues of lower relative size. Moreover, in This paper aims to detect the existence of an opportunistic behaviour – i.e. moral hazard – within countries with higher institutional quality, lower restrictions on non-traditional banking activities, the Italian banking sector by investigating how banks face their challenges in lending relation- and highly competitive banking markets, the announcement effects of a bank rights issue are ships and engage in risky behaviour. In order to detect this opportunistic behaviour, we adopt a more negative. The results are robust to different control variables, alternative model specifica- fixed effect threshold panel analysis approach to investigate the role of Non Performing Loans tions, sample variations, and potential endogeneity concerns. (NPLs) in signalling moral hazard problems. Applying a balanced panel regression model to a dataset of 298 Italian commercial banks – composed of three different kinds of banks (stock, cooperative, mutual) – from 2006 to 2014, we investigate whether banks’ lending behaviour is sensitive to high levels of NPLs and, more importantly, whether banks with higher NPLs ratios tend to adopt a more aggressive and riskier lending strategy. We also empirically test the hypothesis that the supervisory activity of the Italian banking authority – through credit risk sanctions – is effective in providing incentives for banks to limit their risky lending strategy and in ensuring the stability of the Italian banking system. The empirical results show that banks may be affected by moral hazard problems, and that the effective supervisory activity by the Italian banking authority provides both incentives for banks to limit their risk lending strategy and ensures the stability Wednesday morning, June 14 Wednesday of the Italian banking system as a whole. Policy implications of findings are evaluated. 80 Parallel Session D5 Parallel Session D5 81

D5 · Credit risk and PD modelling Gabriele Sabato Wiserfunding S.r.l, UK Wednesday morning, June 14 Edward Altman NYU Stern, USA Maurizio Esentato Classis Capital S.p.A., Italy “Assessing the Credit Worthiness of Italian SMEs and Mini-bond Issuers” ABSTRACT A number of innovations have been introduced in the last five years to counter the devastating Chairman: Herbert Rijken impact of credit rationing in Europe, particularly from traditional bank lending. This is a major problem for the small and medium size firms’ sector in Europe, which has also suffered from bank Zhiyong Li Southwestern University of Finance and Economics, China regulatory concerns of capital adequacy, heightened emphasis on default risk of bank counter- parties and the general malfunctioning of credit extension and private sector growth. In Italy, “Predicting the Risk of Financial Distress using Corporate Governance some of these less traditional sources of funding for SMEs have started to become more popular Measures” and the development of the mini-bond market is a clear example. We believe “mini-bonds” can ABSTRACT be a success in Italy as long as the market supplies an attractive risk/return tradeoff to inves- Corporate governance is essential for business and management. Poor corporate governance tors as well as affordable and flexible financing for borrowers. Assessments of credit risk must can damage the interests of shareholders, and may lead to company collapse. Previous studies be convincing and objective, providing complements to the traditional rating agency process. In in credit risk prediction show limited evidence how corporate governance variables determine this study, we develop a new innovative model to assess SMEs’ creditworthiness and we test it bankruptcy. In this paper survival models and a wide selection of corporate governance measures on the companies that have issued mini-bonds so far. Our findings confirm that the amount of are applied to the prediction of corporate credit risk. We find that variables from board composi- information asymmetry is still high in the market and is affecting the level of risk/return trade off tion, ownership structure, management compensation, and personal characteristics have signifi- potentially reducing the number of investors and small businesses that would be interested in Time 08.30-10.35 D6.014 - Ground Floor Room cant associations with the risk of financial distress, which provides additional predictive accuracy using this new channel to fund their business growth. compared to traditional models with financial ratios. It is suggested that regulations regarding State-Owned Enterprises and independent directors should be specially focused in China.

Francisco Rodriguez-Fernandez University of Granada, Spain Santiago Carbo-Valverde Bangor Business School, UK Carmen Gallucci University of Salerno, Italy Anthony Saunders NYU Stern, USA Vincenzo Formisano University of Cassino, Italy “Underwriting as certification of bank bonds” Michele Modina University of Molise, Italy Room D6.014 - Ground Floor Time 08.30-10.35 Filomena Pietrovito University of Cassino, Italy ABSTRACT Banks distribute corporate debt by selling their reputation as underwriters to investors. Neverthe- “Estimating the additional predictive power of bank-firm hard information less, a little explored area is the certification role of banks in placing their own bond debt. We show in default models. An analysis on a sample of Italian firms” that strong underwriter reputation brings significant differences in yield and fee benefits and that ABSTRACT these differences are actually larger in crisis years. Over the 2003-2013 period we find that issuer The aim of this paper is to evaluate the contribution of several aspects of the (hard) bank-firm re- banks could save Eur 11 million per deal when that transaction was placed by a reputable under- lationship in anticipating the corporate default event in a model including firms specific balance writer, while they lost Eur 9 million per deal when the deal was managed by an underwriter in a sheets characteristics. Using a unique dataset on a sample of 113 co-operative credit banks and less reputable group. about 12,000 firms operating in Italy, between 2012 and 2014, this paper documents that private-hard information, coming from checking accounts activities and long term loans performances, provides an additional explanatory power respect to the public-hard information, gathered from balance sheets, in predicting the likelihood of default. Estimating a pooled probit model, it finds that usage of credit lines and credit lines limits violations on checking accounts, as well as credit lines limit violations and payments overdue on long term loans increase the accuracy prediction of default events by about 10% one year before and by 6% two years before. Wednesday morning, June 14 Wednesday 82 Parallel Session D6 Parallel Session D6 83

D6 · Banking system and financial Ana Escribano Castilla-La Mancha University, Spain Pilar Abad Rey Juan Carlos of Madrid University, Spain Wednesday morning, June 14 Antonio Díaz Castilla-La Mancha University, Spain M. Dolores Robles Complutense University of Madrid, Spain “Institutional vs retail investors’ behavior around credit rating news: regulation The effect of rating-contingent regulation” ABSTRACT This paper investigates the impact of credit rating downgrades on the liquidity and trading be- Chair: Rachel Shalom-Gilo havior of both segments of trading, the institutional- and the retail-sized ones, in the U.S. corporate bond market. Using the TRACE dataset, we analyze the information content of these events and potential information asymmetries, distinguishing between trades’ size. We test different ex- Jimmy Skoglund SAS Institute, Sweden istent hypotheses about the effects on the trading after the release of the rating announcements, “Loan Fair Value Approaches Revisited” and propose one new additional hypothesis: the capital requirements hypothesis that may force some institutional and retail bondholders to sell after certain downgrades. Additionally, our re- ABSTRACT sults show trading anticipation before downgrades that is consistent with the existence of both In this paper we discuss practices for fair value estimation of banking book items. While fair value types of investors, informed and uninformed. We also observe the fire sales and price concessions principles are not new they have gained in importance recently with new accounting regulations (e.g., effects when the rating downgrades deal with rating-specific regulatory constraints and with IFRS 9) and banks are also considering market best practices to disclose banking book valuations rating-contingent capital requirements. focusing on market implied views rather than potentially biased internal views. A core part of the fair value estimation is the extraction of the risk-neutral market implied view on risk spreads using either directly observable or approximate market spreads. Such extraction can be based on the available Xenia Scimone University of Tor Vergata, Italy Claudio Giannotti Lumsa University, Italy credit markets and one can either extract a spread or premia directly from the market or start with a Time 08.30-10.35 D6.015 - Ground Floor Room Gianluca Mattarocci University of Tor Vergata, Italy Umberto Filotto University of Tor Vergata, Italy real-world model of credit risk as the basis and add a market induced risk premia. In the latter case there is the benefit of relating real-world expected loss models to risk-neutral. Regardless of approa- “Residential Mortgages, the Real estate Market, and Economic Growth: ch - using the actual spread or risk premium extracted from the market in discounting of cash flows Evidence from Europe” is of course central in fair value and the foundation of the market valuation principle. As for the bulk of the banking book items there are no active quote markets the fair value estimation often uses the ABSTRACT discounted cash flow principle similar to bonds. Loans may however have rating or credit state de- The amount of residential mortgages outstanding (hereinafter RMI) changes year by year based pendent cash flow features that require a valuation using a state transition matrix setting. Similarly, on market conditions that could affect the risk assumed by lenders in offering credit to custom- loans may be exposed to statistical prepayment models that require adjustments to simple bond ers. The literature shows that the amount of residential mortgages outstanding is mainly driven valuation schemes. In our valuation scheme we strip the cash flows of financial engineering valued by housing prices and the gross domestic product (GDP) but there is no clear evidence on the embedded options and value such embedded optionality separately. This definition of the valuation causal relation between the variables, especially for the European market. This paper aims to Room D6.015 - Ground Floor Time 08.30-10.35 cash flows is consistent with the new regulation for interest rate risk in the banking book which is an explain the linkage between house prices and residential mortgages outstanding in Europe and advantage as such banking book cash flows should already be available in banks. to evaluate whether policy makers can significantly influence economic growth by supporting residential lending. The results show that, in the short term, the value of residential mortgages is positively influenced by a shock house price index and the GDP but, in the long term, the amount Orly Sade The Hebrew University of Jerusalem, Israel of residential mortgages outstanding remains positively influenced by the GDP and negatively Maya Haran Rosen The Hebrew University of Jerusalem and BOI, Israel influenced by the house price index. “Does Financial Regulation Unintentionally Ignore Less Privileged Populations?” Manish Gupta University of Nottingham, UK ABSTRACT In 2014, the Israeli insurance and long-term savings regulator reached out to the Israeli population “Industry Shocks to Internal Funds and Agency Costs - Evidence from a Po- to help individuals find inactive retirement plans and withdraw inactive funds. We find that the go- licy Innovation” vernment's effort did not result in withdrawals of the majority of the accounts, and did not reach all subpopulations equally. Provident fund records indicate that those who took financial action and wi- ABSTRACT thdrew funds following the campaigns live in localities in the center of the country that have higher When external funds are costly, the joint effect of a simultaneous increase in internal funds and socioeconomic characteristics, and they are relatively older. Using survey data we found evidence agency costs on investment is theoretically indeterminate. The REITs Modernization Act (2001) that those with low financial literacy and confidence in their knowledge of retirement planning and by lowering REITs' dividend distribution requirement from 95% to 90% resulted in an increase the unemployed were less likely to have been aware of the financial regulatory campaigns. The sur- in internal funds, which, in turn, aggravated agency costs. The Act therefore provides a rare op- vey further shows the importance to financial action of confidence in retirement knowledge, gender, portunity to empirically evaluate the unanswered question. Employing differences-in-differences age, education and immigration. We conclude that less privileged populations were less likely to methodology we find that less-monitored REITs indulge in overinvestment. Furthermore, we find Wednesday morning, June 14 Wednesday have been aware of the campaign, less likely to understand the information, and less likely to have that less-monitored REITs, compared with monitored firms, increase cash holdings but do not ac- taken action based on the information. cordingly reduce their reliance on external funds. The findings support free cash flow hypothesis. Poster Session Abstracts 86 Poster Session Poster Session 87

Hanna Kociemska Wroclaw University of Economics, Poland Elvis Tankwa Ngatat Shanghai Jiao Tong University, China “Risk interpretations’ in conventional public finance and Islamic finance as “The Impact of the Rule of Law on Foreign Direct Investment and Economic a development of finance theory applicable for public private partnership Growth in China” structures” ABSTRACT ABSTRACT In spite of the fact that, there have been tremendous researches on literature of principles of the The research objective of the project is to extend the theoretical basis of risk management in the theory of rule of law, most research frameworks have nevertheless focused on the regional eco- public and Islamic finance. The author hypothesizes that the existing theories of finance, the public nomic perspective and the impact of the rule of law on Foreign Direct Investment. This research choice theory and the concept of New Public Management create insufficient conditions for risk examines the fundamental interactions between the rule of law, FDI and government policy on management in the public finance sector entities and associated international structures of pu- the panel of China’s trade policy making. With a control-panel of data analytic-thinking of GMM blic-private partnership. As shown by the experience of recent years, the theory of financial markets model, I found a groovy positive link between the rule of law and sustainable management of as regards its operators has not yet developed a widely accepted model of risk management. In economic development. I found that without the rule of law countries would benefit less from cor- addition, the public choice theory and the concept of New Public Management do not fully illu- porations for a long-run perspective because of the behavior of economic freedom and mutual strate the essence of risk management in the public sector. In Islamic finance, Sharia complaint trust. I found that without the rule of law corporations with expensive technology would be afraid instruments cannot be based on “gharar”, which is usually translated as risk, deception, delusion to enter the market or would not fully participate. and excessive uncertainty. In a typical approach to this concept the market is better than the public administration where it is essential to satisfy the individual preferences of the members of the society, introduce advanced technology and operate in an efficient and expeditious manner. Hen- ce, public-private partnership would guarantee meeting the expectations of the community while Ivelin Zvezdov AIR Worldwide, USA maintaining the public entity’s control of the quality and availability of public services provided. The “Competitive Premium Pricing and Cost Savings for Insurance Policy discussed research would therefore be a contribution to multi-faceted development of public and Islamic finance in PPP structures. Supplementing the theory of risk management in public entities Holders: leveraging Big Data” and public-private partnerships in the future could first result in stimulated awareness of public ABSTRACT entities about existing risk areas and methodologies for their management. The research method Examining the intersection of research on the effects of (re)insurance risk diversification and avail- mostly used in the article are analysis and critique of scientific literature with respect to risk of ope- ability of big insurance data components for competitive underwriting and premium pricing is ration of public entities and risk in Islamic finance as well as public- private partnerships. the purpose for this paper. We study the combination of physical diversification by geography and insured natural peril with the complexity of aggregate structured insurance products, and furthermore how big historical and modeled data components impact product underwriting decisions. Under such market conditions, the availability of big data components facilitates accurate Gang Wang Clemson University, USA measurement of inter-dependencies among risks, and the definition of optimal and competitive insurance premium at the level of the firm and the policy holders. We extend the discourse to “The Effects of the Fed's Quantitative Easing Announcement on the U.S. a notional micro-economy and examine the impact of diversification and insurance big data Mortgage Market: An Event- Study Analysis” components on the potential for developing strategies for sustainable and economical insurance ABSTRACT policy underwriting. We review concepts of parallel and distributed algorithmic computing for big This paper uses regression based event-study analysis to examine the response of the 30-year data clustering, mapping and resource reducing algorithms. mortgage rate to the Federal Reserve’s Quantitative Easing (QE) announcements in zero lower bond period. A total of 35 QE announcements from 2008 to 2015 are selected in reference to previous literature and my own discretion. Each announcement is then identified by a certain type and in a QE round. After model validation, the best-fitting IGARCH model with skewed t distri- Artemio Gnerre LS Lexjus Sinacta, Italy bution is used to measure the QE announcement effects on daily changes of 30-year mortgage rate, 30-year Treasury rate and the spread between them. Abnormal returns (changes), cumula- “RISK ASSESSMENT TEST - (RAT)©: discriminant analysis and the prediction tive abnormal returns and their long-run values of the mortgage rate for each announcement of Corporate Bankruptcy” within 1-day, 3-day and 5-day event windows are calculated and reported. In event windows, announcements suggesting the start of a new round of QE reduced the mortgage rate tremendou- ABSTRACT sly, while the effects of further news conveying a continuation of the current QE policy diminished. The Risk Assessment Test - (RAT)© is a new credit scoring model that measures the probability of Announcements of an increase in mortgage-backed security purchases decreased the mortgage corporate bankruptcy. The purpose of this research will be to attempt an assessment in term of rate more than the Treasury rate and reduced the credit risk of holding mortgage securities over global financial risk in order to predict the corporate bankruptcy. The discriminant analysis was Treasury securities. Two robustness checks find that the shocks of macro-economy and mort- chosen as the appropriate methodology suggested by several authors as Prof Altman E., Beaver gage rate determinants were trivial in influencing abnormal returns and cumulative abnormal W. and Deakin E.B. for assessing of probability of default. The new credit-scoring model has been returns of the mortgage rate on average, and the results do not change so much if the model is applied on a sample of Italian firms to demonstrate its efficiency. The results, confirm the impor- controlling for the 10-year Treasury rate instead of the 30-year Treasury rate. tance and the potentiality of the Risk Assessment Test- (RAT)© for multi-sector enterprises. 88 Poster Session Poster Session 89

Jolanta Ciak Toruń School of Banking, Poland Aneta Ptak-Chmielewska Warsaw School of Economics, Poland “Value Added, Risk Management and the Improvement of the Quality of Anna Matuszyk Warsaw School of Economics, Poland Services as Effects of Internal Auditing Functioning in the Local Government “The impact of non-financial ratios in the SMEs bankruptcy prediction” Sector in Poland – Research Results” ABSTRACT ABSTRACT Credit risk is a key risk in banking activity. Statistical and data mining models used in assessing Internal auditing in Poland has been functioning for over 15 years, but both its legal environment credit risk of enterprises are based on financial data from financial statements of entities. Howe- and its practice still cause numerous problems experienced by auditors themselves and entities ver, in the case of small and medium enterprises, the qualitative factors are more important in subject to internal auditing. The aim of this article is to define value added as a result of auditing assessing credit risk. In this paper the most frequently used qualitative factors in assessing credit functioning in local government units, to identify the risks occurring the most often and to create risk of small and medium enterprises were discussed. Using data mining techniques the qualita- a ranking of activities influencing the improvement of the quality of public services. Additionally, tive factors were analyzed, their assessment, the way they are included in the credit risk model. the article aims at indicating positive and negative effects of the functioning of internal auditing in Poland and at presenting observations and comments in this area. In order to achieve the indicated objective, in 2016 a survey which was the continuation of study started in 2015 was conducted on internal auditing in the public finance sector entities. It allowed giving a clearer Maria Gaia Soana Parma University & SDA Bocconi, Italy view of the institution of audit and its role in the local government sector, prioritizing the kinds of Giovanni Ferri LUMSA University, Italy risks according to the hierarchy of their importance for local government units, creating a ranking of the types of value added and of activities facilitating the improvement of the quality of public “Do CRD-IV manager compensation incentives work for small cooperative services. banks?” ABSTRACT The CRD-IV Directive introduced some variable remuneration provisions in order to try to mitigate danger of excessive risk taking behavior in the financial sector. While such approach makes Katarzyna Kochaniak Cracow University of Economics, Poland sense for profit maximizing banks, it could be faulty to tame risk exposures of small cooperative banks (SCBs). We test our contention via unique data freshly assembled by an ad-hoc survey on “Regulatory Thresholds of Household Deposit Stability in the Euro manager compensation, internal governance and banks risk taking in Europe before and after Area – Adjustments Needed?” the introduction of CRD-IV. Our results show that changes in remuneration schemes caused by ABSTRACT CRD-IV did not induce less risk taking in SCBs. Our evidence also demonstrates that the changes The paper investigates the occurrence of three categories of household deposits in 15 euro area in internal governance derived from the CRD remuneration rules are not clearly associated with countries – guaranteed, high value, and very high value – which, according to the European Bank- risk exposure. The policy implication we may derive from those results is that European regulators ing Authority, differ regarding their sensitivity to outflows under stress. Due to the significance of ought to reassess the CRD-IV remuneration prescriptions exempting SCBs from these rules that household deposits as a source of funding of credit institutions, they became incorporated in the prove ineffective, and yet are quite burdensome to those banks. EU post-crisis single regulations. The paper attempts to assess whether the abandonment of one of the above categories in a Delegated Act of the European Commission can be perceived as correct from the regulatory perspective. The analysis is based on household-level data and applies a logit model. The main finding is that the impact of wealth and socio-demographic features of Joanna Bruzda Nicolaus Copernicus University, Poland households on their propensity to possess the deposits was opposite regarding guaranteed and unguaranteed deposits. It proves two separate profiles of households who declared deposits in “Complex analytic wavelets in measurement of macroeconomic risks and the euro area. The similarities between the owners of the two categories of unguaranteed de- pricing of assets” posits – of high value and of very high value – suggested their close natures. The study did not ABSTRACT confirm the insignificance of unguaranteed deposits of values up to EUR 500,000 which became In this paper complex analytic wavelets are used to measure exposures to risk factors within mul- omitted in the single regulations for households participating in the survey. When adopting the tifactor asset pricing models with macroeconomic sources of risk. Our measures of systematic EBA stance in the study regarding sight and saving retail deposits, their nature should be per- risk are computed as wavelet gain coefficients, which incorporate the effects of leads and lags ceived as unstable in particular countries. For selected member states, the adoption of the single on the assessment of sensitivity to different risk factors and enable the investor to track changes limit within guarantee schemes was assessed as an incentive which may strengthen the deposits’ in systematic risk across wavelet scales. This approach is applied to construct empirical wavelet resilience on withdrawals, and thus positively influence the funding stability of credit institutions. asset pricing models for the US stock market with industry portfolios as test assets, showing that the modified beta coefficients substantially change the assessment of macroeconomic risks and demonstrating how they affect pricing of different risk factors. We discover pricing of exposures to short-term oscillations in the term structure and medium-term oscillations in unexpected inflation, and also find that industries with high contemporaneous exposure to business cycle risk tend to generate lower returns. 90 Poster Session Poster Session 91

Willem Schutte North-West University, South Africa Gamze Ozturk Danisman Bogazici University, Turkey Marelize Pretorius North-West University, South Africa Pelin Demirel University of Southampton, UK Helgard Raubenheimer North-West University, South Africa “Corporate Risk Management and Firm Value: Evidence from an Emerging “The use of spliced distributions in estimating Operational Value-at-Risk: Market”

A simulation study” ABSTRACT ABSTRACT This paper examines the impact of corporate risk management strategies, namely (1) financial, (2) The aggregate loss distribution is frequently used in risk and insurance, especially when estimat- operational and (3) enterprise risk management (ERM) on firm value in the context of an emerging ing economic and regulatory capital for operational risk under Basel’s Advanced Measurement market, Turkey. We use a sample of non-financial Turkish companies between 2010-2015 and use Approach (AMA). Among the methodologies available under the AMA, the Loss distribution ap- mixed research methods to gain insights into the complex relationship between risk manage- proach is by far the most familiar technique with practitioners and academia. The aggregate loss ment and firm value. The quantitative methodology that involves dynamic panel regression with distribution is a compound distribution resulting from a random sum of losses, where the losses one-step difference GMM estimators is accompanied by a qualitative study that involves in-dep- are distributed according to some severity distribution. Many techniques are proposed in the lit- th interviews with selected finance and risk management professionals of the firms in the sample. erature on estimating the severity distribution. One method that received a lot of attention is the Results surprisingly reveal that none of the three risk management strategies considered in the use of what is known as a spliced distribution, or peak-over-threshold methods. This approach paper increase firm value in the Turkish context. We explore how the different institutional envi- involves fitting the severity distribution by splicing the distribution in an ‘expected’ (or ‘body’) part ronments surrounding firms moderate the relationship between risk management and firm value. and an ‘unexpected’ (or ‘tail’) part. The conditional distribution function of the expected losses will typically be some well-known statistical distribution, i.e., the Burr, Weibull or Lognormal distribution, although an empirical distribution can also be used. From the Pickands-Balkema-deHaan Gianfranco Forte University of Milan Bicocca, Italy theorem, the conditional distribution function of the unexpected losses will typically be a gener- Emanuele Rossi University of Milan Bicocca, Italy alized Pareto distribution due to the heaviness of the severity distribution’s upper tail. This study Gianfranco Gianfrate Bocconi University, Italy aims firstly at investigating various forms of spliced distributions and alternative ways to fit these spliced distributions. Secondly, because of the complexity of the spliced distribution, an investi- “Does Relative Valuation Work for Banks” gation is done to establish whether other distributions can be used as an alternative to spliced ABSTRACT distributions. All of this is done by means of a simulation study. Based on some goodness-of-fit We investigate the role of relative valuation with respect to European and US banks. We assess measures and the comparison of the extreme quantiles of the compound distribution (some es- the accuracy of a set of industry specific multiples by studying the distribution and properties timate of Operational Value-at-Risk), we propose the best performing distributions in different of each multiple’s valuation errors. The results highlight that multiples are best suited for US in- simulated and real world scenario’s. stitutions, and that a two-year-forward P/E is the most precise metric. Contrary to practitioner beliefs, P/Tangible Book Value is less meaningful than P/BV. Multiples accuracy declines in case of small commercial banks relative to large commercial banks and investment bank relative to retail banks pointing out that for small retail bank and investment bank equity valuation using Alessandro Danovi University of Bergamo, Italy multiples becomes a more challenging exercise. Additionally, error distributions are exploited to “A Sisyphean Task. Avoiding Bankruptcy through Debt Restructuring assess whether large positive errors lead to systematic one-year positive price performances and Agreements in Italy” whether negative errors lead to negative price changes. We find that the forward P/E loses its information ability in favor of historical multiples. The investment strategies’ performance is re- ABSTRACT markable and shows that bank multiples can also be used in portfolio choices.. Between 2008 and 2014 the financial crisis affecting many European countries has led more than 10,000 Italian companies to file for preventive arrangements and debt restructuring agreements. This paper presents the results of a study on filings under article 182-bis of Italian Insolvency Law which occurred in sixteen Courts of Northern Italy between 2005 and 2014. In particular, the Massimo Mariani Lum Jean Monnet, Italy empirical analysis highlights the strong relationship between deferrals / write-offs of debts owed Angeloantonio Russo Lum Jean Monnet, Italy to banks and the odds of success of the restructuring (defined as the lack of procedures after the Alessandra Caragnano Lum Jean Monnet, Italy restructuring filing under examination). The study also provides rich descriptive statistics which “Does it pay to invest in green? Exploring the antecedents of Green Bonds” may advance both theoretical and practical knowledge. ABSTRACT In the last decades, the themes relative to CSR assumed a crucial role in the relations among the different stakeholders and the social and collective interest issues. In this scenario, CSR is mainly characterized by the voluntary choices made by the various market actors, in terms of initiatives, activities, policies and innovative financial instruments such as Green Bonds. The aim of this paper is, after having analyzed both literature and characteristics typical of Corporate Social Re- 92 Poster Session Poster Session 93

sponsibility (CSR), Socially Responsible Investments (SRI) and Green Bonds, to supply an answer and raise questions on the different variables impacting on the Green Bonds return also analyzing Michael Abendschein University of Osnabrück, Germany the weight of each one. For that purpose, it will be analyzed the relationship between the perfor- Peter Grundke University of Osnabrück, Germany mances of Green Bonds and the characteristics of both bond issuing and bond issuer. “On the ranking consistency of global systemic risk measures: empirical evidence” ABSTRACT Zbigniew Drewniak WSB University in Toruń, Poland We empirically analyze to which extent popular global systemic risk measures (SRMs) yield com- parable results with respect to the systemic importance of a financial institution and, in particular, “The risk of stock investment under recommendation of brokerage offices from which determinants the degree of consistency of the classification by the various SRMs and houses” depends. Therefore the rank correlations of the SRMs are investigated in order to detect common ABSTRACT drivers that might explain inconsistent ranking outcomes. First results show only weak linear rela- The aim of the article is an analysis of stock recommendations in the aspect of risk. The article tions between rank correlations and bank-specific or macro-economic variables, indicating that presents the measures that can explain the importance of risk in stock investments under re- the underlying process is non-trivial. commendation. The author pay attention not only to the fulfilment of recommendation that is commonly the most important in the aspect of return but also on duration – number of days that fall till fulfilment of recommendation, rate of returns in short, mid and long terms till recommen- Barbara Będowska-Sójka Poznań University of Economics, Poland dation fulfilment as well as standard deviation of daily rates of return. The companies of WIG20, “Liquidity, spreads and volatility across the German and the Polish stock the basic index of the Warsaw Stock Exchange, were analysed. The analysis was carried out on 3858 recommendations issued by 55 brokerage offices and houses in the years 2006-2016. markets” ABSTRACT The applicability of different liquidity and spreads measures varies across the markets. In this paper we examine the dependencies between monthly liquidity, spreads and volatility measures Paweł Modrzyński UTP University of Science and Technology Bydgoszcz, Poland calculated on the basis of daily data on two European stock markets, the developed German Robert Karaszewski UTP University of Science and Technology Bydgoszcz, Poland market and the emerging Polish market. We study the interactions between liquidity, spreads and Iwona Posadzińska UTP University of Science and Technology Bydgoszcz, Poland volatility in these two markets in a panel model for 30 blue chip stocks within the period from Rafał Drewniak UTP University of Science and Technology Bydgoszcz, Poland 2001 through 2016. For the stocks listed on the developed market there exists a strong interac- Monika Klemke-Pitek UTP University of Science and Technology Bydgoszcz, Poland tion between Amihud illiquidity and high-low spreads within the whole sample. On the emerging “Service Level Agreements as a primary tool of risk management in financial market the interdependency between these measures strengthen as the stock market matures. accounting processes in government shared services centers in Poland” The transaction costs on both markets show similar dynamics within the whole period, although we find that on the emerging market they are significantly higher. Our panel data model confirms ABSTRACT that higher volatility stimulates market and increases trading activity. The greater transaction The main purpose of this article is to present the essential elements of risk management in out- costs are observed at the time greater price variability and in the period of financial crisis. sourcing of finance, accounting, and payroll services among local government units. In the research hypothesis, the author points to the construction of the contract on a guaranteed standard of service (SLA) as a basic tool to minimize the risk of financial accounting processes in the provision Piotr Podsiadlo Cracow University of Economics, Poland of shared services. This choice was determined by the prevalence of current solutions used in the units of local self-governments in Poland. Creating a shared services center is a natural stage “State aid to promote risk capital investments and its impact on the com- of organizational development of an enterprise in the pursuit of excellence. The basis for the petitiveness, the economic growth and the state of public finances of the EU operation of the units or entities around shared services centers are agreements (SLA), which, in Member States the opinion of many experts, are treated as an extremely important tool on the way to improve ABSTRACT the quality of services and risk management. The design of the SLA contracts should take into The subject of the article is to present the conditions of admissibility of State aid in the European account the following parameters: (1) unconditionality, (2) the legibility and transparency, (3) defi- Union, taking into account the rules applicable to the horizontal State aid. The qualitative analysis ning the guaranteed service and rules of conduct in the case of the emergence of irregularities,(4) of State aid granted by the Member States is carried out under the provisions of the Treaty on the ease of use (5) transparency of the procedures of appeal, (6) credibility Construction of the SLA for Functioning of the European Union and the rules of State aid admissibility on the basis of the imple- local government units covering the joint service depends on the scope of the services provided. menting regulations, adopted by the European Commission in 2006 and 2014 on State aid provided For accounting services, payment and pay support the basis for the design of the SLA is shared under the framework for State aid to promote risk finance investments. Statistical data for quantitative accounting policy of the units serviced and the servicer, including, among others: the manual analysis were gathered on the basis of reports published by the European Commission on State aid circulation of accounting documents, accounting policy, the rules for the valuation of assets and granted by Member States. This should lead to verify the hypothesis of the influence of State aid on liabilities, a statement on the protection of personal data and their processing and a list of fixed the competitiveness, the economic growth and the state of public finance in the EU Member States, assets subject to record quantitatively-valuable. which have provided State aid to promote risk capital investments in small and medium-sized enter- 94 Poster Session Poster Session 95

prises in the years 2000-2014. This analysis is carried out based on the linear regression model. The behavioral heterogeneity of rates of return on shares in selected industries. The future research in this response variable (dependent variable Y) is: 1) the size of GDP per capita, 2) the size of the GDP and 3) domain ought to concentrate on conducting a thorough analysis of homogeneity structure in selected the size of the general government sector debt, and explanatory variable (independent variable X) is industries so as to determine some regularities in the behavior share prices in the particular industries. the expenditure on State aid to promote risk finance investments. In the other words, the hypothesis highlights that the volume of expenditure on State aid in respect of the whole European Union and particular Member States, should be positively correlated with the rate of GDP per capita, determining A. Can Inci Bryant University, USA Nejat Seyhun University of Michigan, USA the level of development and competitiveness of the European economy and positively correlated with the size of the GDP in real terms, which is a synthetic measure of the economic situation in the “Degree of Integration between Brent Oil Spot and Futures Markets: state, and negatively correlated with the size of the general government sector debt. Intraday Evidence” ABSTRACT We investigate the integration of spot and futures markets using matched, intraday data to avoid Monica Ordonez University College London, UK non-synchronous trading issues. Our evidence indicates highly integrated spot and futures markets. Alex Murray University College London, UK Economic shocks that arise in spot markets are quickly transmitted to the futures markets approx- imately one for one. Most of the reaction takes place within minutes. Similarly, economic shocks “PFI accounting and financial performance - the life cycle accounts of UK arriving in futures markets are transmitted to spot markets one for one, once again, within minutes PFI SPVS” consistent with market efficiency. Overall, our findings indicate well-functioning, well-integrated ABSTRACT spot and futures oil markets that are informationally efficient and that perform the functions of The role of Public Private Partnership (PPP) procurement methods for investment in public service assets both price discovery and risk transfer. is a growing trend globally. As the main form of PPP in the UK, Private Finance Initiative (PFI) has been controversial in its use for building a range of public facilities such as schools and hospitals. Essentially a form of project finance business model, PFI involves the use of off balance sheet special purpose Ireneusz Miciuła University of Szczecin, Poland vehicles (SPV), the accounts of which offer insight into how these business operate and how profitable they are, given the contracted revenue basis of their existence. The following paper presents sampling “Score-based risk assessment method in the public sector” methods for near complete coverage of UK PFI SPVs providing insight into the lifecycle dependent ABSTRACT nature of SPV assets and liabilities, as well as providing information on the profitability of these firms. Article classifies the risk and fundamental elements necessary to manage it. The analysis of the Additional analyses consider the cost of debt and equity sale practices observed with reference to data internal components of the risk management process and presents the role of management control. on the unlisted PFI secondary equity market. Conclusion focus on how such data might be improved Poland accordance with the agreement the EU has developed and implemented a risk management and developed to improve the transparency and procurement of PPP project involving the use of SPVs. system in the public sector, reflecting the role of management is in a preferred embodiment goals. As part of the article presents a tool risk score that can be modified to the needs of a specific organization, including public sector entities. Information about how to manage risk in each EU country Marcin Kalinowski WSB University Gdańsk, Poland are made available because of the desire to show the stability and proper monitoring of the risks Grzegorz Krzykowsk WSB University Gdańsk, Poland in order to fulfill the given tasks. This affects the perception of stability in the country, which has a “Homogeneity structure evaluation of securities' rates of return with the direct impact on the economic effects. application of data mining methods in selected industries (New York Stock Exchange case) ” Joy Elly Tulung FEB University Sam Ratulangi Manado, Indonesia ABSTRACT Dendi Ramdani Bank Mandiri, Indonesia The behavior of share prices on the market is subject to continual research. The aim of this work is to Herman Karamoy FEB University Sam Ratulangi Manado, Indonesia evaluate the behavioral heterogeneity of rates of return on shares in selected industries in the Amer- Frederik G. Worang FEB University Sam Ratulangi Manado, Indonesia ican market (NYSE). The research hypothesis of this work is the claim that share price behavior, and rates of return on shares are industry specific rather than global share market specific. The research “Board Independence, Board Size and BPD Performance” into enterprises representing four selected industries from the American market (energy, trade, finance, ABSTRACT health) has been instrumental in pursuing that goal. Detailed analyses have been conducted with the use of data mining methodology. The research carried out proves that: 1. There appears to be behav- The purpose of this article is find the relation between board independence, board size and BPD ioral homogeneity of industry indexes (at the level of regression analysis). 2. Behavioral heterogeneity performance. The sample firm consists all 26’s BPD in Indonesia in the period 2010 – 2014, we take in selected industries has been discovered owing to the application of the analysis incorporating data secondary data from annual report of each BPD, total 203 top executives that are member of board mining tools. 3. The energy industry has been first to reveal behavioral instability. Subsequently, it has from all BPD in Indonesia. Board independence is independent commissioner in BPD. Board size is appeared in the health, finance and trade industries. 4. Despite the lengthy research period the insta- the number of executives sitting both on the board of commissioners and board of directors. The bility of industry indexes appeared at a similar time in all industries (2007-2010). Please note that this results are the influence of board independence, board size and the interaction between board inde- time period overlaps with the global recession in financial markets. 5. In addition it is worth noticing that pendence and board size to BPD performance. The sample employed all the members of the boards behavioral instability of trade and health industries manifested itself at the end of the research time on BPD in Indonesia giving us a confidence in generalization our finding. The statistical method used period (IX-X 2016). It justifies an increase in risk related to the next phase of crisis in the financial market. to test the hypotheses is OLS regression, this method used to measure the relationship between It may be correlated with the global political situation. The work has demonstrated the existence of board independence, board size and BPD performance. 96 Social Event Information Conference Venues 97 Monday morning, June 12 University of Florence Social Science Campus Via delle Pandette, 9 50127 Florence Building D6, Ground Floor

European University Institute Tuesday, June 13, 19.00 Badia Fiesolana Room D6.018 - Ground Floor Time 11.15-13.15 D6.018 - Ground Floor Room Via dei Roccettini, 9 Guided Tour at Antinori Wine cellar, San Casciano in Val di Pesa 50014 San Domenico, Fiesole Gala Dinner at Ristorante “Rinuccio 1180”

Guided tour of the famous Antinori innovative wine cellar and Gala dinner at “Rinuccio 1180” Restaurant, located in the extraordinary landscape of the Chianti region. Shuttles buses will be provided to all the participants between the workshop venue (European University Institute) and the social event venue. Dress code: FORMAL CASUAL Room D6.018 - Ground Floor Time 11.15-13.15 Antinori Winery Via Cassia per Siena, 133 - Loc. Bargino San Casciano Val di Pesa, Firenze

Restaurant “Rinuccio 1180” Via Cassia per Siena, 133 - Loc. Bargino Monday morning, June 12 San Casciano Val di Pesa, Firenze The Antinori Winery in the Chianti Classico region is a labyrinth of sinuous vaults and volumes. The "new palace" inaugurated in October 2012, born from the earth and covered with vines, is the synthesis of Italian "savoir-faire" and excellent quality. 98 Conference Organizers and Partners Conference Organizers and Partners 99

Edward Altman Menachem Brenner Max L. Heine Professor of Finance and Director of Research in Credit and Research Professor of Finance at New York University - Stern School of Debt Markets at the Salomon Center for the Study of Financial Institutions Business at the New York University Stern School of Business His primary areas of research include derivative markets structure, option Dr Altman received his MBA and PhD in Finance from the University of pricing, inflation expectations, auctions, market efficiency and liquidity. California, Los Angeles. Prior to serving in his present position, he chaired His articles have appeared in leading journals in finance and economics Stern’s MBA program for 12 years. Dr. Altman was named to the Max L. Heine including the Journal of Finance, the Journal of Financial Economics, the endowed professorship at Stern in 1988. Internationally recognized as an Journal of Business, the Journal of Political Economy and the Journal of expert on corporate bankruptcy, high yield bonds, distressed debt, and credit Monetary Economics. In 1986, he co-invented (with Prof. Galai) the volatility risk analysis. He served as President of the Financial Management Association index based on the prices of traded index options and introduced the idea in 2003, and was appointed an FMA Fellow in 2004. Dr. Altman was named of volatility derivatives, an idea which was implemented 20 years later. He one of the most influential people in Finance by Treasury & Risk Management was a founding editor of the Review of Derivatives Research and has served magazine in 2005, he is a Founder and Executive editor of the international on several editorial boards and program committees. In addition to working publication and has published or edited many books and articles in scholarly with doctoral students and teaching the popular finance course on “Futures finance, accounting, and economic journal. His work has appeared in many and Options,” he served as deputy chairman of the finance department and is languages including French, German, Italian, Japanese, Korean, Portuguese currently the director of the Masters in Global Finance program, a joint venture and Spanish. He has been Chairman Emeritus and a member of the Board of between the Hong Kong University of Science and Technology’s Business Trustees of the Interschool Orchestras of New York, and a founding member of School and NYU Stern. Before joining Stern, he was a tenured faculty member the Board of Trustees of the Museum of American Finance. at the Hebrew University and a Visiting Professor at Berkeley, the University of Bergamo, University of Melbourne and Tel Aviv University. He also served as an Advisor to the Bank of Israel, the Securities Authority and was a board member of the Tel Aviv Stock Exchange.

Oliviero Roggi Stefano Miani Professor of Corporate Finance, University of Florence and Research Full Professor of Banking and Insurance at the University of Udine Professor at Fundação Getulio Vargas, Sao Paolo, Brasil He is member of the Board of Directors and past-president of the Evaluation Oliviero earned his Ph.D in Management and Finance at University of Bologna Board at the University of Udine. He has worked on different appraisals on and City University Business School European Joint Ph.D program in 1998. bank failures and he is a bank consultant. His main research areas include Visiting Researcher at City University Business School from 1998 to 2000, he pension funds and pension systems, the regulation and monitoring of has been appointed Assistant Professor in Corporate Finance in 2000. He is insurance companies, the regulation of financial markets and intermediaries. Professor of Corporate Finance at University of Florence since 2004. Founder Recently, he published several articles and books’ chapter on Islamic Finance. of the Finanza Firenze Research Center in 2007, in 2008 he also founded, He has also been a board member of ADEIMF (Italian association of professor together with Edward Altman - NYU Stern Salomon Center, the International of Banking and Finance). Risk Management Conference. In 2008-2009 he served as Visiting professor in Accounting Masters Program at Universidade de Fortaleza (Brasil). Consultant at European Commission, Regione Toscana (Italy) and other public owned entities is acting and doing research in the area of Enterprise Risk Management, and in particular Credit Risk since 2004. Member of the Scientific Committee of the Country Risk Forum of Associazione Bancaria Italiana (ABI - Italian Bankers Association). He has published papers and books on SME rating and on rating models generally speaking. In 2009, he published a book on “Risk Value and Company Default”. He is Co-author of Aswath Damodaran, NYU STERN, for the forthcoming 3° Italian edition of Applied Corporate Finance and he is NYU Stern Visiting Scholar since 2009 and consultant at IFC World Bank group since 2010. 100 Conference Organizers and Partners 101

Rossella Locatelli Full Professor of Banking at the University of Insubria and President of ADEIMF

She graduated in Economics and Banking Science at the Università Cattolica del Sacro Cuore, where she was a researcher until 1998. She has also been manager of CreaRes, the Business Ethics and Social Responsibility Research Centre. She is manager of Criel (Center for Internationalization of Local Economiies); she is a member of the Supervisory Board of Darma SGR (in receivership) and, more recently, Chairman of the Board of Directors of Società Bonifiche Ferraresi S.p.A, member of the Board of Directors of Banca Intesa Sanpaolo where she is chairman of the Risk Committee. Since March 2016 she serves as president of ADEIMF - Associazione dei Docenti di Economia degli Intermediari e dei Mercati Finanziari.

Associazione dei docenti di Economia degli intermediari e dei mercati finanziari(Italian Association of Scholars of Administration and Management of Financial Institutions and Markets) is headquartered in Parma, at the University of Parma. It is a non-profit association, which aims at contributing to the development and diffusion of the knowledge of financial institutions and markets, both in the scientific and professional fields, in Italy and abroad. 102 Workshop Co-Coordination Workshop Co-Coordination 103

Elena Carletti Professor of Finance at Bocconi University, Scientific Director of the Florence School of Banking and Finance at the European University Institute and a member of the Advisory Scientific Committee of the European Systemic Risk Board.

Before joining Bocconi University in 2013 Elena was Professor of Economics at the European University Institute, where she held a joint chair in the Economics Department and the Robert Schuman Centre for Advanced Studies. She is also Research Fellow at CEPR, Extramural fellow at TILEC, Fellow at the Center for Financial Studies, at CESifo, at IGIER and at the Wharton Financial Institutions Center. Her main research areas are Financial Intermediation, Financial Crises and Regulation, Competition Policy, and Corporate Governance. She has published numerous articles in leading academic journals, and has coedited various books. She participates regularly in policy debates and roundtables at central banks and international organizations and has also organized numerous academic and policy-oriented events. She has worked as consultant for the OECD and the World Bank, and she has served in the review panel of the Irish Central Bank and of the Riskbank. She has also been a board member of the Financial Intermediation Research Society and a review panel member for the creation of Financial Market Centres in Stockholm.

Florence School of Banking & Finance Pierre Schlosser Scientific Coordinator of the Florence School of Banking and Finance of the Established in January 2016 as part of the Robert Schuman Centre for Advanced Studies, the Robert Schuman Centre at the European University Institute Florence School of Banking & Finance is a European platform bringing together practitioners and academics from the Banking and Finance sector to develop a common culture of regulation and Pierre holds a Ph.D in political and social sciences (European University Institute, supervision in the European Union. Florence, 2016), a postgraduate master degree in EU economic studies (College of It does so through training and policy debate, at the School’s premises or using interactive online Europe, Bruges, 2008) and a master’s degree in economic governance (Sciences formats, in close cooperation with its network of leading academic institutions. Po Paris, 2007). His main research interests encompass fiscal surveillance, The objectives of the Florence School of Banking and Finance are: 1. to provide a European forum financial stability and banking regulation, supervision and resolution. Previously, for independent and critical thought and informed debate by bringing together scholars with the Pierre worked for 5 years for EURELECTRIC, the Brussels-based European energy world of practice; 2. to support professionals in keeping up-to-date with European developments industry association. Prior to that, he worked as a stagiaire in the European in this swiftly evolving field; 3. to provide access to academically robust and praxis-relevant Commission’s DG ECFIN, where he wrote a master-thesis on the Stability and knowledge from a multidisciplinary perspective. Growth Pact. The School trains professionals working in the area of Banking and Finance. This includes staff from International Organizations, European Institutions (e.g. the European Central Bank, the European Commission and the European Banking Authority), National Central Banks, National Competent Authorities as well as academics working in the field and interested in learning more Jan Trevisan about European banking regulation, supervision and resolution. Project Associate in charge of communications and outreach activities at the Currently the School focuses on four substantive areas, namely: Financial Stability and Florence School of Banking and Finance part of the Robert Schuman Centre Regulation, Supervision and Resolution, Risk Management and Statistical and Econometric for Advanced Studies at the European University Institute Methods. Elena Carletti is the Scientific Director of the School andFabio Canova is the Head of Training. His previous work positions include communications officer at the EUI, where among other duties he managed the organization of the high-level conference “The State of the Union” from 2014 to 2016, and project developer and junior researcher at the International Center for Climate Governance, a joint research initiative of Fondazione ENI Enrico Mattei and Fondazione Giorgio Cini. Jan holds a master’s degree in International Relations from the University of Venice (Ca’Foscari) and a postgraduate master in Diplomacy and International Relations from the University of Florence. Main Sponsor

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CONFERENCE MANAGEMENT PRE-EVENT CONFERENCE MANAGEMENT THE RISK, BANKING AND FINANCE SOCIETY FINANZA FIRENZE RESEARCH CENTRE Tel +39 0552759720 Email: [email protected] Email: [email protected] Graphic: UPSTUDIOMILANO.com www.therisksociety.com Print: Tipografia Linari Firenze