VGSF - WU Vienna - LC

Pietro Veronesi, Chicago Booth

Campus WU D4.0.133 12:00 - 13:00

Organizer WU Vienna

The Fin­ance Brown Bag Sem­inar is held by the In­sti­tute for Fin­ance, Bank­ing and In­sur­ance (WU Vi­enna) and the Vi­enna Gradu­ate School of Fin­ance (VGSF). It serves as a present­a­tion plat­form for PhD stu­dents, fac­ulty mem­bers, and vis­it­ors. An over­view of BBS on the web­site of the In­sti­tute for Fin­ance, Bank­ing and In­sur­ance.


Septem­ber 20th, 2019, 12:00-13:00, D4.0.133

Pi­etro Ver­onesi, The Uni­versity of Ch­icago Booth School of Busi­ness

Title: "Lever­age" (with Tano San­tos)


Dif­fer­en­tial vari­ation in house­holds’ risk pref­er­ences over the busi­ness cycle af­fects the de­mand and sup­ply of debt se­cur­it­ies, which, in turn, af­fect in­ter­me­di­ar­ies’ bal­ance sheets. As in the data, our fric­tion­less model pre­dicts that in­ter­me­di­ar­ies’ debt de­clines in con­trac­tions when their fin­an­cial risk in­creases and as­set prices drop, thus mim­ick­ing act­ive de­lever­aging. As in­ter­me­di­ar­ies’ lever­age prox­ies for ag­greg­ate risk aver­sion, it pre­dicts as­set re­turns. Our model is con­sist­ent with poorer house­holds bor­row­ing more and with levered house­holds de­lever­aging in crisis and "fire selling" their risky se­cur­it­ies. Yet, as em­pir­ic­ally ob­served, their debt-to-wealth ra­tios in­crease as higher dis­count rates make their wealth de­cline faster.

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