Job Market Talk - Luca Gemmi (Boston College)

Title: "Rational Overoptimism and Moral Hazard in Credit Booms"

  • Data: 16 marzo 2022 dalle 13:00 alle 14:00

  • Luogo: Microsoft Teams Meeting

Abstract

I develop a framework in which over optimism in credit booms originates from rational decisions of managers. Because of moral hazard, managers pay too little attention to the aggregate conditions that generate risk, leading them to over borrow and over invest during booms. Periods of low risk premia predict higher default rates, higher probability of crises and systematic negative banks excess returns, in line with existing evidence. I document a negative relation between the convexity of CEO's compensation and their information on a larger sample of firms, which is consistent with my theory. My model implies that compensation regulation can play an important role in macro prudential policy.   

Invited by: Emanuele Campiglio

Local Organizer: Emanuele Campiglio