It has become almost conventional wisdom that investors should avoid funds with high expense ratios. Like many nuggets of conventional wisdom, there is some truth, but many exceptions: some of the best funds come at the price of higher expense ratios. Financial planners need this type of...

The regulatory framework established during the Great Depression was dismantled in stages after 1969. The deregulation of deposits at banks and savings institutions created incentives to widen the scope of investments that banks and thrifts could make. Novel instruments were created that should...

This study empirically analyzes the historical performance of defaulted debt from Moody’s Ultimate Recovery Database (1987-2010). Motivated by a stylized structural model of credit risk with systematic recovery risk, we argue and find evidence that returns on defaulted debt co-vary with...

Dodd-Frank Wall Street Reform regulations and other postcrisis regulations and guidelines have put enormous pressure on financial institutions to optimize the use of their scarce capital and to improve their return on equity (ROE) which has been significantly compressed compared to historical...

In this study we survey practices and supervisory expectations for stress testing (ST) in a credit risk framework for banking book exposures. We introduce and motivate ST; and discuss the function, supervisory requirements and expectations, credit risk parameters, interpretation results with...

Market liquidity risk, the difficulty or cost of trading assets in crises, has been recognized as an important factor in risk management. The literature has already proposed several models to include liquidity risk in the standard Value-at-Risk framework. While theoretical comparisons between...

The new Basel III rules for liquidity and funding will have an impact on several areas of the banking business. As a consequence, it is useful to identify the key areas within a bank where Basel III has the biggest impact and to define the necessary strategies, processes, and new products to...

This paper explores capital commitment and cash-flow management issues in private equity fund investing. It provides a theoretical framework to structure private equity capital commitment issues in a formal manner, and defines variables, inter-relationships, and boundaries in such a way that the...

Starting in September 2008 stock market regulators across the world introduced, at different times and for different durations, bans on short-selling financial institution’s shares. The argument for the bans is that short selling increases the volatility and contagion risk of financial...

The link between investor sentiment and asset valuation is at the center of a long-running debate in behavioral finance. Using a new composite sentiment indicator, we show that the conventional risk does not explain the abnormal returns of portfolios most sensitive to the sentiment factor. Our...