The Social Science Research Network is an excellent source of academic papers regarding many different topics. Don't be misled by the Social Science name, as the site has many financial and investing related papers.
Over the next week or so, I will post a list of the top ten downloaded financial or investing related papers. Some of them are classics and some may be a little surprising. Most of them are free to download as well.
This is the tenth most downloaded paper related to a financial or investing topic.
Optimal Capital Allocation Using RAROC and EVA - By Neal Stoughton and Josef Zechner - Downloaded 21,718 times.
Abstract
"Equity capital allocation plays a particularly important role for financial institutions such as banks, who issue equity infrequently but have continuous access to debt capital. In such a context this paper shows that EVA and RAROC based capital budgeting mechanisms have economic foundations. We derive optimal capital allocation under asymmetric information and in the presence of outside managerial opportunities for an institution with a risky and a riskless division. It is shown that the results extend in a consistent manner to the multidivisional case of decentralized investment decisions with a suitable redefinition of economic capital. The decentralization leads to a charge for economic capital based on the division's own realized risk. Outside managerial opportunities increase the usage of capital and lead to overinvestment in risky projects; at the same time more capital is raised but risk limits are binding in more states. An institution with a single risky division should base its hurdle rate for capital allocated on the cost of debt. In contrast, the hurdle rate tends to the cost of equity for a diversified multidivisional firm. The analysis shows that hurdle rates have a common component in contrast to the standard perfect markets result with division-specific hurdle rates."
Thursday, July 9, 2009
Daily Link Orgy - July 9, 2009
Tuesday, July 7, 2009
Daily Link Orgy - July 7, 2009
The Social Science Research Network is an excellent source of academic papers regarding many different topics. Don't be misled by the Social Science name, as the site has many financial and investing related papers.
Over the next week or so, I will post a list of the top ten downloaded financial or investing related papers. Some of them are classics and some may be a little surprising. Most of them are free to download as well.
This is the ninth most downloaded paper related to a financial or investing topic.
Understanding the Subprime Mortgage Crisis - By Yuliya Demyanyk and Otto Van Hemert - 21,793 downloads.
Abstract
"Using loan-level data, we analyze the quality of subprime mortgage loans by adjusting their performance for differences in borrower characteristics, loan characteristics, and macroeconomic conditions. We find that the quality of loans deteriorated for six consecutive years before the crisis and that securitizers were, to some extent, aware of it. We provide evidence that the rise and fall of the subprime mortgage market follows a classic lending boom-bust scenario, in which unsustainable growth leads to the collapse of the market. Problems could have been detected long before the crisis, but they were masked by high house price appreciation between 2003 and 2005."
Number 10.
