You are here


Essays in financial economics

Marco Naldi, 1998
Faculty Advisor: Lawrence Glosten


Chapter 1 presents an agency model with career concerns, where managers choose among alternative projects on a mean-variance frontier. Their unobservable choice is intended to influence the market perception of their ability level, which in turn determines their future compensation. We show that the characteristics of the second-best solution crucially depend on the shape of the investment frontier. In contrast with the standard approach, we argue that within our framework the level of managers' risk aversion does affect the strength of the implicit incentive. In particular, we find that if the marginal expected return does not decrease too quickly as project risk increases, there may be an equilibrium in which more risk-averse managers will choose riskier projects. An immediate consequence of this is that the welfare loss due to the agency problem may well be inversely related to the degree of risk aversion.

In Chapter 2, we discuss the relation between internal monitoring, disclosure requirements and ownership structure. If a large shareholder sells part of her holding in the secondary market to achieve better diversification, her monitoring activity decreases to a level that is optimal according to her post-trade holding. This increases the welfare loss due to the public-good nature of internal monitoring. On the other hand, if a shareholder holds on to a large stake of the firm and monitors accordingly, investors are imperfectly hedged against the outflow of firm-specific information that takes place in the meantime. A welfare-maximizing ownership structure optimally solves this trade-off. Severe disclosure requirements tend to increase the volatitlity of the firm's market value and the costs of imperfect risk-sharing, thus decreasing the optimal level of concentration. Therefore, severe disclosure requirements, though they may increase the effectiveness of external monitoring and incentive contracts in reducing agency costs, will decrease the benefits from active stockholding. We argue that our simple theory is consistent with the observed differences between the United States and most European countries with regards to several matters of corporate governance.

In Chapter 3, we first propose a simple methodology that relies on the Arbitrage Pricing Theory (APT) and is intended to separate interest-rate factors from non-interest-rate factors in the return process of high-yield bonds. Then, we identify a set of proxies for non-interest-rate factors by studying a unique data set of high-yield issues. A time-series approach is employed to estimate factor loadings for several high-yield portfolios with markedly different risk-return profiles. We find that a rather parsimonious model specification captures a significant fraction of time-series variability and explains cross-sectional differences in expected returns. Our study also suggests that index trading may play an important role in designing effective hedging strategies for high-yield investors.

Doctoral Program News

Honigsberg featured in Ideas at Work

The August issue of Ideas at Work features research that doctoral candidate Colleen Honigsberg led in conjunction with Sharon Katz.

Read More about Colleen

Wazlawek featured in Ideas at Work

Abbie Wazlawek's joint research with Professor Daniel Ames is featured in the June 24th, 2014 edition of Ideas at Work

Read More about Abbie

Ethan Rouen featured in Ideas at Work

Ethan Rouen's joint research with Professor Dan Amiram is featured in the May 15th, 2014 edition of Ideas at Work

Read More about Abbie

Rivas Wins Fellowship

The PhD program is proud to congratulate Miguel Duro Rivas, who was awarded the Nasdaq Educational Foundation Doctoral Dissertation Fellowship.

Read More about Miguel

Wong wins Deloitte Fellowship

We are proud to announce that Yu Ting (Forester) Wong is one of the recipients of the 2014 Deloitte Foundation Doctoral Fellowship in Accounting.

Read More About Yu Ting >

The PhD Program Congratulates John Yao

PhD student John Yao was a finalist in the 2013 M&SOM (Manufacturing & Service Operations Management) student paper competition.

Read More About John >

Honigsberg Named Postdoctoral Fellow

The PhD program is proud to congratulate Colleen Honigsberg, who was named the Postdoctoral Fellow in Corporate Governance at the Millstein Center at Columbia Law School in October 2013

Read More about Colleen >


Application Deadlines

Master of Science in Marketing >

For Fall 2015 Entry:
Deadline: January 5th, 2015


Master of Science in Financial Economics

For Fall 2015 Entry:
Deadline: January 5th, 2015


Master of Science in Management Science and Engineering

For Fall 2014 Entry:
Early Decision: Jan 6, 2015
Regular Decision: Feb 15, 2015


Apply Now
Sept 2015

Deadline: 01/05/15

MS Marketing
Deadline: 01/05/15

MS Financial Economics
Deadline: 01/05/15


Check Application Status

Students listening to classroom lecture

Once you've submitted your application, you can login and track your status by using the link below.

Check Status