College of Business Administration
413C Hayden Hall
Boston, MA 02115-5000
NBER Working Papers and Publications
|March 2014||Why Do Banks Practice Regulatory Arbitrage? Evidence from Usage of Trust Preferred Securities|
with Rüdiger Fahlenbrach, René M. Stulz: w19984
We propose a theory of regulatory arbitrage by banks and test it using trust preferred securities (TPS) issuance. From 1996 to 2007, U.S. banks in the aggregate increased their regulatory capital through issuance of TPS while their net issuance of common stock was negative due to repurchases. We assume that, in the absence of capital requirements, a bank has an optimal capital structure that depends on its business model. Capital requirements can impose constraints on bank decisions. If a bank's optimal capital structure also meets regulatory capital requirements with a sufficient buffer, the bank is unconstrained by these requirements. We expect that unconstrained banks will not issue TPS, that constrained banks will issue TPS and engage in other forms of regulatory arbitrage, and that ba...
Published: Nicole M. Boyson, Rüdiger Fahlenbrach, René M. Stulz; Why Don't All Banks Practice Regulatory Arbitrage? Evidence from Usage of Trust-Preferred Securities, The Review of Financial Studies, Volume 29, Issue 7, 1 July 2016, Pages 1821–1859, https://doi.org/10.1093/rfs/hhw007
|June 2008||Hedge Fund Contagion and Liquidity|
with Christof W. Stahel, Rene M. Stulz: w14068
Using hedge fund indices representing eight different styles, we find strong evidence of contagion within the hedge fund sector: controlling for a number of risk factors, the average probability that a hedge fund style index has extreme poor performance (lower 10% tail) increases from 2% to 21% as the number of other hedge fund style indices with extreme poor performance increases from zero to seven. We investigate how changes in funding and asset liquidity intensify this contagion, and find that the likelihood of contagion is high when prime brokerage firms have poor performance (which would be expected to affect hedge fund funding liquidity adversely) and when stock market liquidity (a proxy for asset liquidity) is low. Finally, we examine whether extreme poor performance in the stock, b...
Published: "Hedge Fund Contagion and Liquidity Shocks," with Nicole M. Boyson and Christof W. Stahel, Journal of Finance, 2010, v65(5), 1789-1816.
|March 2006||Is There Hedge Fund Contagion?|
with Christof W. Stahel, Rene M. Stulz: w12090
We examine whether hedge funds experience contagion. First, we consider whether extreme movements in equity, fixed income, and currency markets are contagious to hedge funds. Second, we investigate whether extreme adverse returns in one hedge fund style are contagious to other hedge fund styles. To conduct this examination, we estimate binomial and multinomial logit models of contagion using daily returns on hedge fund style indices as well as monthly returns on indices with a longer history. Our main finding is that there is no evidence of contagion from equity, fixed income, and foreign exchange markets to hedge funds, except for weak evidence of contagion for one single daily hedge fund style index. By contrast, we find strong evidence of contagion across hedge fund styles, so that hedg...