[SEEM5202 Seminar Announcement] (Friday, August 21, 2015, 4:30pm - 5:30pm)

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                Department of Systems Engineering and Engineering Management
                             The Chinese University of Hong Kong

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Date: Friday, 4:30pm - 5:30pm, 21 August, 2015

Title: Credit Expansion and Neglected Crash Risk

Speaker: Wei Xiong (Hugh Leander and Mary Trumbull Adams Professor in Finance and Professor of Economics in the Department of Economics and Bendheim Center for Finance, Princeton University)

Abstract:

In a set of 20 developed countries over the years 1920-2012, bank credit expansion predicts increased crash risk in the bank equity index and equity market index. However, despite the elevated crash risk, bank credit expansion predicts lower rather than higher mean returns of these indices in the subsequent one to eight quarters. Conditional on bank credit expansion of a country exceeding a 95th percentile threshold, the predicted excess return for the bank equity index in the subsequent eight quarters is -25.8%. This joint presence of increased crash risk and negative mean returns presents a challenge to the views that financial instability associated with credit expansions are simply caused by either banks acting against the will of shareholders or by elevated risk appetite of shareholders, and instead suggests a need to account for the role of over-optimism and neglect of crash risk by shareholders.

Biography:

WEI XIONG is Hugh Leander and Mary Trumbull Adams Professor in Finance and Professor of Economics in the Department of Economics and Bendheim Center for Finance, Princeton University. His research interests center on capital market imperfections and behavioral finance. He has published in top economics and finance journals on a wide range of research topics, such as speculative bubbles, asset pricing with heterogeneous beliefs, asset market contagion, limited investor attention, non- standard investor preferences, rollover risk and other financing frictions faced by firms. His current research interests focus on financialization of commodity markets, belief distortions in the recent financial crisis, and China’s financial markets. He has received various awards, including 2012 Smith Breeden Award (first prize) for the best non-corporate finance paper published in Journal of Finance and 2013 NASDAQ OMX Award for the best asset pricing paper presented in Western Finance Association Meetings. He received his Ph.D. in finance from Duke University in 2001 and B.S. in physics from University of Science and Technology of China in 1993. He is a research associate of the National Bureau of Economic Research and had been the finance editor of Management Science in 2009-2011.

Everyone is welcome to attend the talk!

Venue: Room 513,
      William M.W. Mong Engineering Building (ERB),
      (Engineering Building Complex Phase 2)
      The Chinese University of Hong Kong.

The talk will be hosted by:
Prof. Nan Chen,
Department of Systems Engineering and Engineering Management,
The Chinese University of Hong Kong,
E-mail: nchen@se.cuhk.edu.hk
Homepage: http://www.se.cuhk.edu.hk/nchen/

SEEM-5202 Website: http://seminar.se.cuhk.edu.hk
Email: seem5202@se.cuhk.edu.hk