Empirical I.O. Methods for Financial Institutions
2017 – A1 Term
https://sites.google.com/site/nwakamori/teaching/
Instructors: Naoki Wakamori nwakamo@gmail.com Room 1212
Office Hours: On Tuesday, 14:45-16:30 or by appointment
Prerequisites: Core courses, in particular, Microeconomics and Econometrics (MUST) Empirical Industrial Organization I and II (Strongly Recommended)
Course Description:
This course is designed mainly for the second year master students who (1) plan to write his/her master thesis on some empirical topics, including development, environmental, financial economics, industrial organization and labor, using structural estimation technique, or (2) want to know how to utilize structural estimation in financial economics. Thus, an ultimate goal of this course is
deepening your understanding in structural estimation, with a special emphasis on financial institutions. To achieve the goal, this course consists with the following three components: (i) lectures on methodology (for two classes), (2) student presentations from the reading lists (roughly five classes), and (3) student presentations of their own research proposal.
For the second part, we will cover recent empirical industrial organization papers which use structural approach. In particular, we will focus on studies of financial sector, including the markets for mutual fund, hedge funds, underwriters, interbank loan, consumer banking, and stocks. For each topic, each student (or group of two students) will present one paper, briefly overviewing how such markets work at the beginning of the class.
Course Requirements:
1. Participation and Attendance (10%)
You must read the papers before each class meeting and participate in the
2. Presentations (50%)
Students must present at least one paper. Please see the slides which I will distribute in the first class meeting.
3. Research Proposal Presentation (40%)
Each student must present his/her research proposal during the class
meeting. It should be about 25-30 minutes. A research question that you want to address in the project must be clearly demonstrated, as well as how to address your research question (methodology that you use) and expected results.
Tentative Course Plan with 5-6 students
Date Course Content
1 9/26 Tu Introduction
2 9/28 Th Review – Demand Estimation 1 3 10/3 Tu Review – Demand Estimation 2 4 10/5 Th (no class) Prepare for the presentation 5 10/10 Tu Student Presentation 1: Lending Market 6 10/12 Th Student Presentation 2: Payment Industry 7 10/17 Tu Student Presentation 3: IPO Market
8 10/19 Th Student Presentation 4: Mutual Funds and Hedge Funds 9 10/24 Tu Student Presentation 5: Venture Capital
10 10/26 Th Student Presentation 6: Interbank Loan market
11 10/31 Tu Student Presentation 7: T-Bill Markets (Double Auction) 12 11/2 Th Research Proposal Presentation 1 (two students) 13 11/7 Tu Research Proposal Presentation 2 (two students) 14 11/9 Th Research Proposal Presentation 3 (two students)
Although there are 14 class meetings in total, we need to have only 13 class meetings by regulation for each semester. Thus, we will skip one of the meeting on October 5th.
Reading List
Part 1: Commercial banks – Deposit, Lending and Mortgage markets, and Payment Industry
Dick, A. Astrid, 2008. “Demand Estimation and Consumer Welfare in the Banking Industry,” Journal of Banking & Finance, 32: 1661-1676.
Egan, Mark, Ali Hortacsu, and Gregor Matvos, 2017. “Deposit Competition and Financial Fragility: Evidence from the US Banking Sector,” American Economic Review, 107(1): 169-216.
Kasahara, Hiroyuki, Yasuyuki Sawada, Michio Suzuki, 2012. “Investment and Borrowing Constraints: Evidence from Japanese Firms,” Unpublished Manuscript. (Note that this paper uses a dynamic model, which might give you a hard time to read through the paper.)
Uetake, Kosuke and Yasutora Watanabe 2013. “Entry by Merger: Estimates from a Two-Sided Matching Model with Externalities,” Unpublished Manuscript.
Akkus, Oktay, Anthony Cookson, and Ali Hortacsu, 2016. “Determinants of Bank Mergers: A Revealed Preference Analysis,” Management Science, 62(8): 2241-2258.
Allen, Jason, Robert Clark, and Jean-François Houde, 2015. “Search Frictions and Market Power in Negotiated Price markets,” Revision Requested by Journal of Political Economy.
Granja, Joao, Gregor Matvos and Amit Seru, 2017. “Selling Failed Banks,” Journal of Finance, 72(4): 1723-1784.
Koulayev, Sergei, Marc Rysman, Scott Schuh and Joanna Stavins, 2016.
“Explaining Adoption and Use of Payment Instruments by US Consumers,” RAND Journal of Economics, 47(2): 293-325.
Ferrari, Stijn, Frank Verboven, and Hans Degryse, 2010. “Investment and Usage of New Technologies: Evidence from a Shared ATM Network,” American Economic Review, 100(3): 1046-1079.
Yang, Botao and Andrew Ching, 2014. “Dynamics of Consumer Adoption of Financial Innovation: The Case of ATM Cards,” Management Science, 60(4): 903-922.
Part 2: Stock markets – Markets for Underwrites, Mutual Fund and Hedge Funds. Market Makers’ behavior
Underwriter: Evidence from Equity-Linked Securities,” Review of Financial Studies, 19(3): 1041-1080.
Yasuda, Ayako, 2005. “Do Bank Relationships Affect the Firm’s Underwriter Choice in the Corporate-Bond Underwriting Market?” Journal of Finance, 60(3): 1259-1292.
Sorensen, Morten, 2007. “How Smart Is Smart Money? A Two-Sided Matching Model of Venture Capital,” Journal of Finance, 62(6): 2725-2762.
Uetake, Kosuke, 2014. “Estimating a Model of Strategic Network Formation and Its Effects on Performance: An Application to the U.S. Venture Capital Market,” Unpublished Manuscript.
Hortacsu, Ali and Chad Syverson, 2004. “Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds,” Quarterly Journal of Economics, 119(2): 403-456.
Gavazza, A., 2011. “Demand Spillovers and Market Outcomes in the Mutual Fund Industry,” RAND Journal of Economics, 42: 776-804.
Li, Shujing, and Jiaping Qui, 2013. ”Financial Product Differentiation over the State Space in the Mutual Fund Industry,” Management Science, 60(2): 508- 520.
Ilyina, Anna and Roberto Samaniego, 2010. “Between Alpha and Beta: Modeling the Impcat of Regulatory Constraints on the Hedge Fund Industry,” Unpublished Manuscript. (*Note that this is not an IO paper, but more or less macro flavor paper.)
(Non-structural Estimation Paper!) Christie, William G. and Schultz Paul, 1994
“Why do NASDAQ Market Makers Avoid Odd-Eighth Quotes?” Journal of Finance, 49(5): 1813-1840.
(Non-structural Estimation Paper!) Christie, William G., Harris, Jeffrey H. and Schultz Paul, 1994. “Why did NASDAQ Market Makers Stop Avoiding Odd- Eighth Quotes?” Journal of Finance, 49(5): 1813-1840.
Part 3: Central bank related services
Bonaldi, Pietro, Ali Hortacsu and Jakub Kastl, 2015. “Empirical Analysis of Funding Cost Spillover in the EURO Zone with Application to Systemic Risk,” Unpublished Manuscript.
Cassola, Nuno, Ali Hortacsu, and Jakub Kastl, 2013. “The 2007 Subprime Market Crisis through the Lens of European Central Bank Auctions for Short- Term Funds,” Econometrica, 81(4): 1309-1345.
Marszalec Daniel, 2015. “The Impact of Auction Choice on Revenue in Treasury Bill Auctions –An Empirical Evaluation,” Unpublished Manuscript.
Elsinger, Helmut, Philipp Schmidt-Dengler and Christine Zulehner, 2016.
“Competition in Treasury Auctions,” CEPR Discussion Paper 10981.
Kastl, Jakub, 2016. “Recent Advances in Empirical Analysis of Financial Markets: Industrial Organization Meets Finance,” Unpublished Manuscript. (Invited Lecture at the 11th World Congress of the Econometric Society).
Hortacsu, Ali, Jaku Kastl and Allen Zhang, 2015. “Bid Shading and Bidder Surplus in the U.S. Treasury Auction System,” American Economic Review (forthcoming)
Allen, Jason, James Chapmman, Federico Echenique and Matthew Shum, 2016. “Efficiency and Bargaining Power in the Interbank Loan Market,” International Economic Review, 57(2): 691-715.
Part 4: Some other topics
Gerakos, Joseph and Chad Syverson, 2015. “Competition in the Audit Market; Policy Implications,” Journal of Accounting Research, 53(4): 725-775.