Next week the VGSF is organizing THREE seminars - one on MONDAY, June 12th,
and two on TUESDAY, June 13th.
Prof. David Feldman from the University of New South Wales is going to talk
about "The CAPM Relation for Inefficient Portfolios" on Monday, June 12th,
from 15:30 to 17:00 at the BWZ, Seminar Room 1, Bruennerstr. 72,1210 Wien.
On TUESDAY, June 13th, two seminars by Kai Li, University of British
Columbia, and Martijn Cremers, University of Yale, are scheduled. Kai is
going to talk about "Corporate Boards and the Leverage and Debt Maturity
Choices". The paper presented by Martijn has to be still announced. This
double seminar takes place from 16:00 to 19:00 in Lecture Room 2 at the
Institute for Advanced Studies (Stumpergasse 56, 1060 Wien).
Information regarding the further schedule of the VGSF research seminar can
be found at
www.vgsf.ac.at!
Best,
Michael Halling
Abstract of "The CAPM Relation for Inefficient Portfolios"
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Following empirical evidence that - contrary to CAPM predictions - found
little relation between expected rates of return and betas, the relation has
been investigated extensively. Roll and Ross (1994) (RR) and Kandel and
Stambaugh (1995) are seminal works. In this context, within a Markowitz
world (finite number of nonredundant risky securities with finite first two
moments), we generally and simply write the theoretical CAPM relation for
inefficient (non-frontier) portfolios (CAPMI). We demonstrate that the CAPMI
is a well-specified alternative for the widely implemented misspecified CAPM
for use with inefficient portfolios. We identify three sources for this
misspecification: i) the omission of an addend in the pricing relation, ii)
the use of an incorrect risk premiums/beta coefficients (due to of the
existence of infinitely many "zero beta" portfolios at all expected
returns), and iii) the use of unadjusted betas. We suggest the use of
incomplete information equilibria to overcome unobservability of moments of
returns. Our results are robust to regressions that produce positive
explanatory beta power, including extensions such as multiperiod,
multifactor, and the conditioning on time and various attributes.
Abstract of "Corporate Boards and the Leverage and Debt Maturity Choices"
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Debt, and in particular, short-term debt have the potential to discipline
managers. We examine the role of the board in making financing decisions
that provide this discipline. Specifically, given a firm's characteristics,
we predict that stronger boards will force the firm to hold more debt and
more shortterm debt, and that the effect of the board on the use of
short-term debt is likely to be stronger among low-growth firms than among
high-growth firms. Employing a rich dataset of board characteristics and
controlling for other aspects of a firm's corporate governance, we find
support for these hypotheses.
Moreover, the degree to which director tenure on the board exceeds the CEO
tenure is the most important driver of board strength in our study. This
simple measure of the relative power and true independence of directors
relative to the CEO is a robust and promising measure of internal
governance.