Philip H. Dybvig
Washington University in Saint Louis
Section 1: http://dybfin.wustl.edu/teaching/topicsquantfin19-1
Section 2: http://dybfin.wustl.edu/teaching/topicsquantfin19-2
Section 3: http://dybfin.wustl.edu/teaching/topicsquantfin19-3
Welcome to Topics in Quantitative Finance! This course talks about ideas and situations that challenge our traditional understanding of quantitative finance.
This page contains papers students can choose to present in class. If you don't see what you would like here, let me know the topic or topics you are interested in, and the TAs and I will try to find you a suitable paper. Each week we will discuss, in my lectures or in the student presentations, interesting papers. I will be posting the papers I will present or students choose on the course web site for your section. Many of the papers can be accessed on JSTOR ("Journal STORage"), an online repository for academic articles. The "Stable URLs" are links on JSTOR. To download the papers for free, you need to use this from a university IP address (or proxy server or VPN), or you can access the papers from other universities. Other links use the university's library proxy server so if you access them from off-campus you will need to use your WUSTL KEY. Each paper can be presented in only one section of the class. This is intended to reduce the incentive for inappropriate collaboration that could lead to an academic integrity violation.
Topic A Bubbles, Doubling Strategies, Suicidal Strategies, and Verification
some underlying theory:(taken) Shell, Karl, 1971, "Notes on the Economics of Infinity," 1971, Journal of Political Economy 79. Stable URL: http://www.jstor.org/stable/1830269.
Dybvig, Philip H., and Chi-fu Huang, 1988, "Nonnegative wealth, Absence of Arbitrage, and Feasible Consumption Plans," Review of Financial Studies 1. Stable URL: http://www.jstor.org/stable/2962096. (Note: skip the appendix. There are many errors in the typesetting.)
(taken) Heston, Steven, Mark Loewenstein, and Gregory A. Willard, 2007, "Options and Bubbles," Review of Financial Studies 20. Stable URL: http://www.jstor.org/stable/4494773.
Samuelson, Paul A., 1958, "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy 66. Stable URL: http://www.jstor.org/stable/1826989.
(taken) Dybvig, Philip H. "Perpetual American Put: valuation and verification theorem," lecture notes, link
experimental and empirical evidence:Smith, Vernon, Gerry Suchanek, and Arlington Williams, 1988, "Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets," Econometrica 56, 1119-1151. Stable URL: http://www.jstor.org/stable/1911361.
Moinas, Sophie, and Sebastien Pouget, "The Bubble Game: An Experimental Study of Speculation," Econometrica 81, http://www.jstor.org/stable/23524184.
Mitchell, Mark, Todd Pulvino, and Erik Stafford, 2002, "Limited Arbitrage in Equity Markets," Journal of finance LVII. Stable URL: http://www.jstor.org/stable/2697750.
Lamont, Owen, and Richard Thaler, 2003, "Can the Market Add and Subtract? Mispricing in the Tech Stock Carve-outs," Journal of Political Economy 111. Stable URL: http://www.jstor.org/stable/10.1086/367683.
Topic B1 Crypto-currencies
Hu, Albert S., Christine A. Parlour, and Uday Rajan, "Cryptocurrencies: Stylized Facts on a New Investible Instrument," working paper, http://webuser.bus.umich.edu/urajan/research/crypto.pdf
Choi, Kyoung Jin, Alfred Lehar, and Ryan Stauffer, "Bitcoin Microstructure and the Kimchi premium," working paper, http://people.ucalgary.ca/~alehar/KimchiPremium26.pdf
(taken) Weber, Beat, Bitcoin and the legitimacy crisis of money, 2014, Cambridge Journal of Economics 40, 17-41. WashU link
Cong, Lin William and Xiao, Yizhou, Information Cascades and Threshold Implementation (August 8, 2018). https://ssrn.com/abstract=3030573
(taken) Nakamoto, Satoshi. "Bitcoin: A peer-to-peer electronic cash system." (2008). unpublished manuscript https://bitcoin.org/bitcoin.pdf
Topic B2 Blockchain
Cong, Lin William and He, Zhiguo, Blockchain Disruption and Smart Contracts. https://ssrn.com/abstract=2985764
Saleh, Fahad, "Blockchain Without Waste: Proof-of-Stake," working paper, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3183935
Biais, Bruno, Christophe Bisiere, Matthieu Bouvard, and Catherine Casamatta, "The blockchain folk theorem," TSE Working Paper, n. 17-817, May 2017, revised January 2018. https://www.tse-fr.eu/publications/blockchain-folk-theorem
Yermack, David, Corporate Governance and Blockchains, 2017, Review of Finance 21 Issue 1, 7-31 https://academic.oup.com/rof/article/21/1/7/2888422
(taken) Malinova, Katya, and Andreas Park, 2016, "Market Design for Trading with Blockchain Technology," unpublished manuscript, https://ssrn.com/abstract=2785626
Topic C Option Pricing
(taken) Carr, Peter, 1998, Randomization and the American Put, Review of Financial Studies 11, 597-626. Stable URL: http://www.jstor.org/stable/2646011.
Baumgartner, Gabriela, and Andrew D. Smith, "American Options, the Method of Images and Closed Form Solutions" http://ssrn.com/abstract=3213781
Han, Jiequn, Arnulf Jentzen, and Weinan E, Solving High-Dimensional Partial Differential Equations Using Deep Learning, working paper https://arxiv.org/abs/1707.02568
Topic D P2P Lending and FinTech
Tang, Huan, 2018, Peer-to-Peer Lenders versus Banks: Substitutes or Complements?" working paper http://huan-tang.com/wp-content/uploads/2018/08/P2P_lending_Tang.pdf
(taken) Liao, Li, Zhengwei Wang, Jia Xiang, Hongjun Yan, and Jun Yang, "Investment Under Fast-Thinking," https://ssrn.com/abstract=3197303
(taken) Chava, Sudheer and Nikhil Paradkar, "Winners and Losers of Marketplace Lending: Evidence from Borrower Credit Dynamics," working paper http://www.cafr-sif.com 18 18selected/87. Winners and Losers of Marketplace Lending_ Evidence from Borrower Credit Dynamics.pdf
Da, Zhi, Xing Huang, and Lawrence J. Jin, "Extrapolative Beliefs in the Cross-Section: What Can We Learn from the Crowds?" working paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3144849
Liao, Li, Xiumin Martin, Ni Wang, Zhengwei Wang, and Jun Yang, "Carrot or Stick? Evidence from a Pair of Natural Field Experiments Testing Lender Information Sharing Hypotheses," working paper, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3182671
Topic E Side-stepping the Investment Banks
(taken) Scholes, Myron and Mark Wolfson, "Decentralized Investment Banking: the Case of Discount Dividend-Reinvestment and Discount Dividend-Reinvestment and Stock-Purchase Plans," Journal of Financial Economics 23, 7-35. WashU link.
Topic F Textual Analysis Tools
(taken) Antweiler, W., & Frank, M. Z. (2004). Is all that talk just noise? The information content of internet stock message boards. The Journal of finance, 59(3), 1259-1294. https://www.jstor.org/stable/3694736
(taken) Jegadeesh, Narasimhan (2013). Word power: a new approach for content analysis, Journal of Financial Economics 110(3), 712-729 WashU link
(taken) Huang, Allen H., Lehavy, Reuven, Zang, Amy Y., & Zheng, Rong (2018). Analyst information discovery and interpretation roles: A topic modeling approach. Management Science 64(6): 2833-2855. https://pubsonline-informs-org.libproxy.wustl.edu/doi/pdf/10.1287/mnsc.2017.2751
(taken) Kelly, Bryan, Manela, Asaf, & Moreira Alan (2018) Text Selection, Working paper http://apps.olin.wustl.edu/faculty/manela/kmm/textselection/textselection.pdf
Topic G Understanding the financial crisis.
overviews and history:Reinhart, Carmen, and Kenneth Rogoff, 2009, This Time is Different: Eight Centuries of Financial Folly, Princeton: Princeton University Press. This book is not available online, but a lot of related data and figures are available here.
Gorton, Gary, and Andrew Metrick, 2012, "Getting Up to Speed on the Financial Crisis: A One-Weekend-Reader's Guide," Journal of Economic Literature 50, 128-150. Link: WashU link.
(taken) Prescott, Edward Simpson, 2010, "Introduction to the Special Issue on the Diamond-Dybvig Model," Federal Bank of Richmond Economic Quarterly, First Quarter 2010. Link: http://www.richmondfed.org/publications/research/economic_quarterly/2010/q1/pdf/prescott.pdf.
the run on the repo market:(taken) Gorton, Gary, and Andrew Metrick, Securitized Banking and the Run on Repo, 2012, Journal of Financial Economics 104, 425-51. WashU link.
connections: my work and the crisis(taken) Diamond, Douglas W., and Philip H. Dybvig, 1983, Bank Runs, Deposit Insurance, and Liquidity, Journal of Political Economy, reprinted in the Minneapolis Fed review, https://www.minneapolisfed.org/research/qr/qr2412.pdf
(taken) Diamond, Douglas W., and Philip H. Dybvig, 1986, Banking Theory, Deposit Insurance, and Bank Regulation, Journal of Business 59, 55-68. Stable URL: http://www.jstor.org/stable/2352687.
Atlanta Fed interview of Dybvig on liquidity: https://www.frbatlanta.org/news/conferences-and-events/conferences/2012/120409-fmc/media/dybvig-interview/12fmc_dybvig_transcript.aspx. This interview is pretty basic (and does not cover shadow banking), but does cover a lot of what regulators should be thinking about. Here are some slides from a related session in the conference: http://www.frbatlanta.org/documents/news/conferences/12fmc/12fmc_dybvig_pres.pdf. Unfortunately, the slides give more questions than answers!
Talk "International Origins of the Financial Crisis"
Talk "Bank Safety and Liquidity Provision"
Discussion of my comments at the G7 meetings in Bari, Italy, in May, 2017.
Topic H Credit risk
theory:(taken) Duffie, Darrell, and Singleton, Kenneth L., 1999, "Modeling Term Structures of Defaultable Bonds," Journal of Financial Studies 12, 687-720. Stable URL: http://www.jstor.org/stable/2645962.
empirics:Pan, Jun, and Kenneth J. Singleton, 2008, "Default and Recovery in the Term Structure of Sovereign CDS Spreads," Journal of Finance 63, 2345-2384. Stable URL: http://www.jstor.org/stable/25094509.
(taken) Collin-Dufresne, Pierre, Robert S. Goldstein, and Fan Yang, 2012, "On the Relative Pricing of Long Maturity Index Options and Collateralized Debt Obligations," Journal of Finance 67, 1983-2014. Stable URL: http://www.jstor.org/stable/23324366
Topic I Indian Economy
(taken) Rajan, Raghuram, "India in the global economy," First Ramnath Goenka Memorial Lecture. http://www.bis.org/review/r160316b.pdf.
(taken) Jayachandran, Seema, and Rohini Pande. 2017. "Why Are Indian Children So Short? The Role of Birth Order and Son Preference." American Economic Review, 107 (9): 2600-2629. WashU link
Mobarak, Ahmed Mushfiq, and Mark R. Rosenzweig. 2018. "Informal Risk Sharing, Index Insurance, and Risk Taking in Developing Countries." American Economic Review, 103 (3): 375-80. WashU link
Topic J Trade and Chinese Markets
Ossa, Ralph. "Trade Wars and Trade Talks with Data." The American Economic Review 104, no. 12 (2014): 4104-146. Stable URL: http://www.jstor.org/stable/43495366
Grossman, Gene M., and Elhanan Helpman, 1995. "Trade Wars and Trade Talks." Journal of Political Economy, vol. 103, no. 4, pp. 675-708. Stable URL: www.jstor.org/stable/2138578
(taken) Bown, Chad P., 2019, "The 2018 US-China Trade Conflict After 40 Years of Special Protection," working paper, https://www.piie.com/system/files/documents/wp19-7.pdf. More background: Chad P. Bown and Eva (Yiwen) Zhang, 2019, "Will a US-China Trade Deal Remove or Just Restructure the Massive 2018 Tariffs?" https://www.piie.com/blogs/trade-and-investment-policy-watch/will-us-china-trade-deal-remove-or-just-restructure-massive
(taken) Kehoe, Timothy J., and Kim J. Ruhl, 2010, "Why Have Economic Reforms in Mexico Not Generated Growth?" Journal of Economic Literature 48, No. 4, pp. 1005-1027 WashU link.
(taken) Song, Zheng, Kjetil Storesletten, and Fabrizio Zilibotti, 2011, "Growing Like China," American Economic Review 101, 196-233. Stable URL: http://www.jstor.org/stable/41038787
(taken) Jin, Keyu, "Industrial Structure and Capital Flows," 2012, American Economic Review 102, 2111-2146. Stable URL: http://www.jstor.org/stable/41724616
(taken) Yao, Wen, and Xiaodong Zhu, 2018, "Structural Change and Aggregate Employment Fluctuations in China and the US", working paper, https://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/600
Topic K Fund Performance
theory of performance of active managers:
(taken) Berk, Jonathan B., and Richard C. Green. 2004. "Mutual Fund Flows and Performance in Rational Markets." Journal of Political Economy 112, No. 6, 1269-95. Stable URL: http://www.jstor.org/stable/10.1086/424739
empirical evidence:
Pastor, Lubos, and Robert Stambaugh, 2012, "On the Size of the Active Management Industry," Journal of Political Economy 120, No. 4 (August 2012), pp. 740-781. Stable URL: http://www.jstor.org/stable/10.1086/667987.
(taken) Zhu, Min, 2018, "Informative Fund Size, Managerial Skill and Investor Rationality," Journal of Financial Economics, forthcoming. WashU link.
Cremers, Martijn, and Antti Petajisto, 2009, "How Active Is Your Fund Manager? A New Measure That Predicts Performance," Review of Financial Studies 22, 3329-65, WashU link
Performance measurement:
(taken) Dybvig, Philip H., and Stephen A. Ross, 1985, "Differential Information and Performance Measurement Using a Security Market Line," Journal of Finance 40, 383-399 Stable URL: http://www.jstor.org/stable/2327891.
(taken) Hunter, David L., Kandel , Eugene, Kandel, Shmuel (deceased), and Wermers, Russ, 2014, Mutual Fund Performance Evaluation with Active Peer Benchmarks, Journal of Financial Economics 112, 1-29 WashU link.
a cool old related paper (from before computers!):
(taken) Cowles, Alfred 3rd, 1933, "Can Stock Market Forecasters Forecast?" Econometrica 1, 309-324. Stable URL: http://www.jstor.org/stable/1907042.
Topic L Anti-corruption Campaign
(taken) Lin, Chen, Randall Morck, Bernard Yeung, and Xiaofeng Zhao, 2016, Anti-Corruption Reforms and Shareholder Valuations: Event Study Evidence from China, 2016 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2729087.
(taken) Hung, Mingyi, T. J. Wong, and Tianyu Zhang, 2012, Political Considerations in the Decision of Chinese SOEs to List in Hong Kong, Journal of Accounting and Economics 53, 435-49 WashU link
(taken) Wang, Qian, T. J. Wong, Lijun Xia, 2008, State ownership, the institutional environment, and auditor choice: Evidence from China, Journal of Accounting and Economics 46, 112-134 WashU link
Dybvig, Philip H., and Yishu Fu, 2018, Tigers and Flies: Corruption, Discretion, and Expertise in a Hierarchy, working paper. http://phildybvig.com /papers/anticorruption180828.pdf
Topic M Finance in Africa
(taken) Blavy, Rodolphe, Anupam Basu, and Murat A Yulek, 2004, Microfinance in Africa : Experience and Lessons From Selected African Countries, IMF Working paper, https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Microfinance-in-Africa-Experience-and-Lessons-From-Selected-African-Countries-17710.
Hearn, Bruce, and Jenifer Piesse, 2015, The Impact of Firm Size and Liquidity on the Cost of External Finance in Africa, South African Journal of Economics 83, 1-22. WashU link.
Gokcekus, Omer and Yui Suzuki, 2016, Mixing Washington Consensus with Beijing Consensus and Corruption in Africa, Singapore Economic Review 61. WashU link.
Topic N Workouts and pre-packaged bankruptcies
Kyle, Albert S. "Pete", 2017, "How to Implement Contingent Capital," in Edward L. Glaeser, Tano Santos, and E. Glen Weyl, eds., After the Flood: How the Great Recession Changed Economic Thought, University of Chicago Press. WashU link.
John, Kose, 1993, "Managing Financial Distress and Valuing Distressed Securities: A Survey and a Research Agenda," Financial Management 22, 60-78. WashU link.
Davydenko, Sergei A., Ilya A. Strebulaev and Xiaofei Zhao, 2012, "A Market-Based Study of the Cost of Default," Review of Financial Studies 2012, 2959-2999. WashU link.
Topic O Investments, picking stocks, and accounting numbers
Sloan, Richard G., 1996, "Do Stock Prices Fully Reflect Information in Accruals and Cash Flows About Future Earnings?" Accounting Review 71, 289-315. http://www.jstor.org/stable/248290.
Allen, Eric J., Chad R. Larson, and Richard G. Sloan, 2013, "Accrual reversals, earnings, and stock returns, Journal of Accounting and Economics 56, 113-129. WashU link.
(taken) Ghosh, Aloke, Zhaoyang Gu, and Prem C. Jain, 2005, "Sustained Earnings and Revenue Growth, Earnings Quality, and Earnings Response Coefficients," Review of Accounting Studies 10, 33-57. WashU link.
(taken) Nissim, Doron, and Stephen H. Penman, 2001, "Ratio Analysis and Equity Valuation: From Research to Practice," Review of Accounting Studies 6, 109-54. WashU link
(taken) Han, Yufeng and He, Ai and Rapach, David and Zhou, Guofu, Firm Characteristics and Expected Stock Returns (August 6, 2019). https://ssrn.com/abstract=3185335
(taken) Petter N. Kolm, Reha Tutuncu, and Frank J. Fabozzi, 2014, 60 Years of portfolio optimization: Practical challenges and current trends, European Journal of Operational Research 234, 356-371. WashU link
Topic P High frequency trading
(taken) Golub, Anton, John Keane, and Ser-Huang Poon, 2012, High Frequency Trading and Mini Flash Crash, working paper. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2182097.
CFTC and SEC staff, FINDINGS REGARDING THE MARKET EVENTS OF MAY 6, 2010. https://www.sec.gov/news/studies/2010/marketevents-report.pdf
(taken) O'Hara, Maureen, "High Frequency Market Microstructure, Journal of Financial Economics 116, Issue 2, May 2015, Pages 257-270 WashU link.
(taken) Biais, Bruno, Thierry Foucault, Sophie Moinas, "Equilibrium Fast Trading," Journal of Financial Economics 116 (2015) 292-313 WashU link
Pagnotta, Emiliano, and Thomas Philippon, 2015, "Competing on Speed," mimeo Link: http://pages.stern.nyu.edu/~tphilipp/papers/Speed.pdf
Li, Wei, 2014, "High Frequency Trading with Speed Hierarchies," 2014, mimeo link
Topic Q Negative interest rates
(taken) Goodfriend, Marvin, 2000, Overcoming the Zero Bound on Interest Rate Policy, Journal of Money, Credit, and Banking 32, 1007-1035. http://www.jstor.org/stable/2601157.
(taken) Goodfriend, Marvin, 2016, "The Case for Unencumbering Interest Rates at the Zero Bound," mimeo, CMU, link
(taken) Heider, Florian, Farzad Saidi, and Glenn Schepens, 2017, Life Below Zero: Bank Lending Under Negative Policy Rates, working paper. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2788204.
(taken) Di Maggio, Marco, and Marcin Kacperczyk, "The Unintended Consequences of the Zero Lower Bound Policy," working paper, http://kacperczyk.net/uploads/3/4/9/6/34969133/zerobound_nov2015.pdf
Topic R Macroeconomic Growth
(taken) Acemoglu, Doron, David Autor, David Dorn, Gordon H. Hanson, and Brendan Price, 2014, Return of the Solow Paradox? IT, Productivity, and Employment in US Manufacturing, American Economic Review 104, 394-99. WashU link online appendix.
Topic S Investing with Transaction Costs
simple single-period model -- good for the intuition(taken) Dybvig, Philip H., 2005, "Mean-Variance Portfolio Rebalancing with Transaction Costs," working paper. pdf file.
continuous-time models:Liu, Hong, and Mark Loewenstein, 2002, "Optimal Portfolio Selection with Transaction Costs and Finite Horizons," Review of Financial Studies 15, 805-835.Stable URL: http://www.jstor.org/stable/2696722.
Jang, Bong-gyu, Hyeng Keun Koo, Hong Liu, and Mark Loewenstein, 2007, "Liquidity Premia and Transaction Costs," 2329-2366. Stable URL: http://www.jstor.org/stable/4622337
Topic T Employee Stock Options
(taken) Dybvig, Philip H. and Mark Loewenstein, 2003, "Employee Reload Options: Pricing, Hedging, and Optimal Exercise," Review of Financial Studies 16, 2003, 145-171. Stable URL: http://www.jstor.org/stable/1262728
Topic U Risk management
general ideas:(taken) Philip H. Dybvig, Pierre Jinghong Liang, and William J. Marshall, 2013, "The New Risk Management: The Good, the Bad, and the Ugly," Federal Reserve Bank of Saint Louis Review, July/August 2013, 95(4) 273--91. http://research.stlouisfed.org/publications/review/article/9914.
failures:Ross, Stephen A., 2002, "Forensic Finance: ENRON and Others," Fourth Angelo Costa Lecture, http://www.rivistapoliticaeconomica.it/nov_dic02/rossengl.pdf
(taken) Jorion, Philippe, 2000, "Risk Management Lessons from Long-Term Capital Management," European Financial Management 6, 277-300. WashU link.
(taken) Pirrong, Stephen Craig, 1997, "Metallgesellschaft: A Prudent Hedger Ruined, or a Wildcatter on NYMEX?" Journal of Futures Markets 17(5) 543-78. WashU link
hedging (asset-liability management) of a pension liability:(taken) Brown, David T., Philip H. Dybvig and William J. Marshall, 2001, The Cost and Duration of Cash-Balance Pension Plans, Financial Analysts Journal 57, No. 6 (Nov. - Dec., 2001), pp. 50-62 Stable URL: http://www.jstor.org/stable/4480356.
Topic V Law and finance
(taken) Roe, Mark J., 2011, The Derivatives Market's Payment Priorities as Financial Crisis Accelerator, Stanford Law Review 63, 539-590. WashU link.
Topic W Market manipulation
(taken) Griffin, John M., and Amin Shams, "Manipulation in the VIX?" working paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2972979
Topic X Dollarization
(taken) Antolfini, Gaetano, and Todd Keister, Dollarization as a Monetary Arrangement for Emerging Market Economies, 2001, Saint Louis Fed Review, 83, no. 6 https://research.stlouisfed.org/publications/review/2001/11/01/dollarization-as-a-monetary-arrangement-for-emerging-market-economies
Topic Y Finance and Society
(taken) Zingales, Luigi, 2015, "Presidential Address: Does Finance Benefit Society?" Journal of Finance, 70: 1327-1363. WashU link
Topic Z Personal Finance
(taken) Thaler, Richard H., and Cass R. Sunstein. Nudge : Improving Decisions about Health, Wealth, and Happiness, Yale University Press, 2008, especially chapters 6 and 9. WashU link