More from these Authors

• Working Paper | 2013

  An Evaluation of Money Market Fund Reform Proposals

  Samuel G. Hanson, David S. Scharfstein and Adi Sunderam

  We analyze the leading reform proposals to address the structural vulnerabilities of money market mutual funds (MMFs). We assume that the main goal of MMF reform is safeguarding financial stability. In light of this goal, reforms should reduce the ex ante incentives for MMFs to take excessive risk and increase the ex post resilience of MMFs to system-wide runs. Our analysis suggests that requiring MMFs to have subordinated capital buffers could generate significant financial stability benefits. Subordinated capital provides MMFs with loss absorption capacity, lowering the probability that a MMF suffers losses large enough to trigger a run, and reduces incentives to take excessive risks. We estimate that a capital buffer in the range of 3 to 4% would significantly reduce the probability that ordinary MMF shareholders ever suffer losses. In exchange for having the safer investment product made possible by subordinated capital, the yield paid to ordinary MMFs shareholders would decline by only 0.05%. Other reform alternatives such as converting MMFs to a floating NAV would likely be less effective in protecting financial stability.

  Citation:

  Hanson, Samuel G., David S. Scharfstein, and Adi Sunderam. "An Evaluation of Money Market Fund Reform Proposals." Working Paper.

  CiteView DetailsRead Now

  Related

• Working Paper | 2013

  Waves in Ship Prices and Investment

  Samuel G. Hanson and Robin Greenwood

  We study the returns to owning dry bulk cargo ships. Ship earnings exhibit a high degree of mean reversion, driven by industry participants' competitive investment responses to increases in demand. This mean reversion is not fully reflected in ship prices. We show that high current ship earnings are associated with high secondhand ship prices and heightened industry investment, but forecast low future returns. We suggest and estimate a behavioral model that can account for the evidence. In our model, individual firms overestimate their ability to respond to common shocks and underestimate the ability of the competition, leading to excessive industry investment during booms and low subsequent returns on capital. Our model nests both rational expectations at one extreme and Kaldor's (1938) cobweb theory at the other, in which producers naively set current production quantities based on lagged prices. Formal estimation of our model suggests significant competition neglect in the shipping industry.

  Citation:

  Hanson, Samuel G., and Robin Greenwood. "Waves in Ship Prices and Investment." Working Paper. (Internet Appendix Here.)

  CiteView DetailsRead Now

  Related

• Case | HBS Case Collection | 2013 (Revised from original 2012 version)

  Grantham, Mayo, and Van Otterloo, 2012: Estimating the Equity Risk Premium

  Samuel Hanson, Erik Stafford, Luis Viceira, Samuel Hanson, Erik Stafford, Luis Viceira, Samuel Hanson, Erik Stafford and Luis Viceira

  Keywords: investment banking; Equity Valuation;

  Citation:

  Hanson, Samuel, Erik Stafford, and Luis Viceira. "Grantham, Mayo, and Van Otterloo, 2012: Estimating the Equity Risk Premium." Harvard Business School Case 213-051, February 2013. (Revised from original October 2012 version.)

  CiteView DetailsPurchase

  Related