4th FTG European Summer Meeting Madrid

Jul 03 - Jul 04, 2019

CEMFI's Campus in Madrid.

 After three successful summer meetings in the UK, we will be moving this year's summer conference to Madrid. William Fuchs and Rafael Repullo are jointly organizing the event with support from UC3M and CEMFI. The conference will take place at CEMFI's headquarters in downtown Madrid on July 3rd and 4th. This conference is open to non-FTG members so please spread the word.




Wednesday, 3 July 2019


9:30-10:00       Registration


10:00-11:30   Session 1       Chair: Rafael Repullo, CEMFI

Debt, Innovation, and Growth

Thomas Geelen, Copenhagen Business School

Jakub Hajda, HEC Lausanne

Erwan Morellec, EPF Lausanne


Financing Breakthroughs under Failure Risk

Simon Mayer, Erasmus University Rotterdam


11:30-12:00     Coffee


12:00-13:30 Session 2       Chair: Diego Garcia, University of Colorado Boulder


Choosing to Disagree in Financial Markets

Shehal Banerjee, University of California, San Diego

Jesse Davis, University of North Carolina

Naveen Gondhi, INSEAD


Endogenous Specialization and Dealer Networks

Batchimeg Sambalaibat, Indiana University


13:30-15:00     Lunch


15:00-16:30  Session 3       Chair: Sheridan Titman, University of Texas Austin


 Bank Capital Forbearance

Natalya Martynova, Deutsche Bundesbank

Enrico Perotti, University of Amsterdam

Javier Suarez, CEMFI


Equity Allocation and Risk-taking in the Intermediation Chain

Anatoli Segura, Bank of Italy

Alonso Villacorta, University of California, Santa Cruz


16:30-17:00     Coffee


17:00-18:30  Session 4       Chair: Andres Almazan, University of Texas at Austin


Dynamic Coordination with Flexible Security Design

Emre Ozdenoren, London Business School

Kathy Yuan, London School of Economics

Shengxing Zhang, London School of Economics


Dynamic Runs and Optimal Termination

Hongda Zhong, London School of Economics

Zhen Zhou, Tsinghua University


Thursday, 4 July 2019


9:00-10:30 Session 5       Chair: Javier Suarez, CEMFI

Self-enforcing Contracts with Persistence

Martin Dumav, Universidad Carlos III de Madrid

William Fuchs, University of Texas at Austin and UC3M

Jangwoo Lee, University of Texas at Austin


Dynamic Contracting under Soft Information

Guillaume Roger, University of Wollongong


10:30-11:00     Coffee


11:00-12:30     Session 6       Chair: Victoria Vanasco, CREI

Dealer Funding and Market Liquidity

Max Bruche, Humboldt University of Berlin

John Kuong, INSEAD


A Theory of Liquidity in Private Equity

Vincent Maurin, Stockholm School of Economics

David Robinson, Duke University

Per Strömberg, Stockholm School of Economics


12:30-13:30     Lunch


13:30-15:00  Session 7       Chair: Vladimir Asriyan, CREI

The economics of deferral and clawback requirements: An indirect tax approach to compensation regulation

Florian Hoffmann, Erasmus School of Economics

Roman Inderst, University of Frankfurt

Marcus Opp, Stockholm School of Economics


A Dynamic Theory of Learning and Relationship Lending

Yunzhi Hu, University of North Carolina, Chapel Hill

Felipe Varas, Duke University


15:00-15:30     Coffee


15:30-17:00  Session 8       Chair: William Fuchs, University of Texas at Austin and UC3M


Funding Constraints and Informational Efficiency

Sergei Glebkin, INSEAD

Naveen Gondhi, INSEAD

John Kuong, INSEAD


Information Acquisition and Liquidity Traps in Over-the-Counter Markets

Junyuan Zou, University of Pennsylvania


Scientific Committee  

                        Andres Almazan, University of Texas at Austin

                        William Fuchs, University of Texas at Austin and UC3M

                        Christine Parlour, University of California, Berkeley

                        Rafael Repullo, CEMFI

                        Javier Suarez, CEMFI

                        Victoria Vanasco, CREI


Logo of the Center for Monetary and Financial Studies (CEMFI), go to Home


A block of rooms are on hold at the TRYP Atocha Hotel in downtown Madrid. The cost is 98.95 euros for a single occupancy room + breakfast inclusive of taxes. To get your room you need to contact Paqui at the Corte Ingles travel agency in UC3M. Her email is unicarlosiii@viajeseci.es and her telephone numbers are (+34) 916 963 314 and (+34) 916 245 791. Use FTG Summer Conference (and William Fuchs if that fails) as a reference. FYI Gay Pride is that week (a very busy time in Madrid) so we strongly suggest you book early. 

Looking forward to seeing you in Madrid!!

William Fuchs and Rafael Repullo



  • Debt, Innovation, and Growth : Recent empirical studies show that innovative firms heavily rely on debt financing. This paper develops a Schumpeterian growth model in which firms’ dynamic R&D, investment, and financing choices are jointly and endogenously determined. It then investigates the relation between debt financing and innovation and growth. The paper features a rich interaction between firm policies and predicts substantial intra-industry variation in leverage and innovation, consistent with the empirical evidence. It also demonstrates that while debt hampers innovation by incumbents due to debt overhang, it also stimulates entry, thereby fostering innovation and growth at the aggregate level.
  • Endogenous Specialization and Dealer Networks : OTC markets exhibit a core-periphery interdealer network: 10-30 central dealers trade frequently and with many dealers, while hundreds of peripheral dealers trade sparsely and with few dealers. Existing work rationalize this phenomenon with exogenous dealer heterogeneity. We build a directed search model of network formation and propose that a core-periphery network arises from specialization. Dealers endogenously specialize in different clients with different liquidity needs. The clientele difference across dealers, in turn, generates dealer heterogeneity and the core-periphery network: The dealers specializing in clients who trade frequently form the core, while the dealers specializing in buy-and-hold investors form the periphery.
  • Equity allocation and risk-taking in the intermediation chain : We build an equilibrium model of the capital structure and risk-taking in the originate-to-distribute intermediation chain in presence of absolute demand for safety by some investors and limited endowment by equity investors. Loan originators may expand investment by raising funds from intermediaries that diversify idiosyncratic risks to create safe securitized assets. Equity funding allows originators to improve their risk-taking incentives and intermediaries to absorb losses from their exposure to aggregate risk. The competitive allocation of equity renders the equilibrium Pareto constrained efficient. Consistent with the saving glut narrative of the expansion of securitization in the run-up to the crisis, an increase in the demand for safety leads to increases in the overall equity invested in intermediaries, the relative size of the intermediary sector and risk-taking at origination. Government policies that include fiscally neutral guarantees to the issuance of securitized assets lead to Pareto improvements in the economy, have ambiguous risk-taking effects at origination, and are preferable to guarantees to originators because of intermediaries' higher exposure to aggregate risk.
  • Dynamic contracting under soft information. : A principal delegates the running of a project to an agent subject to moral hazard over an infinite horizon, and cannot observe any of the outcomes. The agent sends reports at each instant t; naturally reports may be manipulated. Eliciting truthful revelation is necessary to the provision of effort, and is achievable by using audits and penalties. It requires that the continuation value of the agent be kept large enough, and the agent be terminated below a threshold; she receives an endogenous information rent. That rent is completely determined by the parameters of the moral hazard problem. The optimal audit trades off the instantaneous audit cost versus the drift of the cash flow process. The contract is implemented in standard financial securities. The effect of the governance problem on the cost of capital is subtle: a positive continuation utility at termination implies some recovery by financiers and so decreases the credit spread. But a deterioration in governance increases that spread sharply.
  • Bank Capital Forbearance : We analyze the strategic interaction between undercapitalized banks and a supervisor who may intervene by preventive recapitalization. Supervisory forbearance emerges because of a commitment problem, reinforced by fiscal costs and constrained capacity. Private incentives to comply are lower when supervisors have lower credibility, especially for highly levered banks. Less credible supervisors (facing higher cost of intervention) end up intervening more banks, yet producing higher forbearance and systemic costs of bank distress. Importantly, when public intervention capacity is constrained, private recapitalization decisions become strategic complements, leading to equilibria with extremely high forbearance and high systemic costs of bank failure.
  • Asymmetric Information and Security Design under Knightian Uncertainty : We study a signaling game in which an issuer with private information about the distribution of the project’s cash flows designs a security to sell to an uninformed investor to raise financing for the project. The investor faces Knightian uncertainty and evaluates each security by the worst-case distribution at which she could justify the security being offered by the issuer. First, we show that both standard outside equity and standard risky debt arise as equilibrium securities. Thus, the model provides a common foundation for two most widespread financial contracts based on one market imperfection, information asymmetry. Second, we show that the equilibrium security differs depending on the degree of uncertainty and on whether issuer’s private information and investor’s uncertainty concern a new project or assets in place. If private information concerns a new project and uncertainty is sufficiently high, standard outside equity arises in equilibrium. When uncertainty is sufficiently small, the equilibrium typically features risky debt and never outside equity. In the intermediate case, both risky debt and standard equity arise in equilibrium. In contrast, if private information concerns assets in place, standard equity is never issued in equilibrium, irrespective of the level of uncertainty, and the equilibrium security is (usually) risky debt.
  • Choosing to disagree in financial markets : The rational expectations paradigm restricts the subjective beliefs of investors to align with the objective distribution. We relax this constraint and analyze how investors optimally choose their subjective beliefs about the information contained in their private signals and in prices. We show that investors systematically choose to deviate from rational expectations. In any symmetric equilibrium, investors optimally exhibit overconfidence in their private information but dismiss the information in prices. However, when aggregate risk aversion is sufficiently low, symmetric equilibria do not exist. Instead, there arises an asymmetric equilibrium in which investors endogenously separate into (i) fundamental investors, who also ignore the information in prices, and (ii) ``technical'' traders, who overweight the information in prices. Relative to the corresponding rational expectations equilibrium, these equilibria feature higher (i) return volatility, (ii) price informativeness, (iii) trading volume, and (iv) return predictability. Finally, such deviations by informed investors improve the welfare of liquidity traders under the objective distribution.
  • Dynamic Coordination with Flexible Security Design : Entrepreneurs obtain funding liquidity by issuing securities backed by the current period dividend and resale price of a long-lived collateral asset. They are privately informed about the collateral quality. Higher (lower) resale price lowers (increases) adverse selection and makes the asset a good (lousy) collateral. Conversely, a good (lousy) collateral has high (low) resale price. When only equity can be issued, this dynamic feedback between the asset price and collateral quality can lead to self-fulfilling prices and multiple equilibria: When asset price is high (low), equity is liquid (illiquid) and real output is high (low). Optimal flexible security design, which involves short-term liquid collateralized debts, eliminates multiple equilibria fragility and improves welfare through inter-temporal coordination. When security design is rigid, multiple equilibria reemerge. Comparative statics generate rich dynamic properties of haircuts and interest rates.