Sylvain Catherine, Countercyclical Income Risk and Portfolio Choices over the Life-Cycle (R&R Review of Financial Studies).
Abstract: I structurally estimate a life-cycle model of portfolio choices that incorporates the relationship between stock market returns and the skewness of idiosyncratic income shocks. The cyclicality of skewness can explain (i) low stock market participation among young households with modest financial wealth and (ii) why the equity share of participants slightly increases until retirement. With an estimated relative risk aversion of 5 and yearly participation cost of $290, the model matches the evolution of wealth, of participation and of the conditional equity share over the life-cycle. Nonetheless, I find that cyclical skewness increases the equity premium by at most 0.5%.
Sylvain Catherine (Under Review), Keeping Options Open: What Motivates Entrepreneurs?.
Abstract: Using French administrative data on job-creating entrepreneurs, I estimate a life-cycle model in which risk-averse individuals can start businesses and return to paid employment. I estimate that the unobserved benefits of entrepreneurship represent 6,100 pre-tax euros per year (some 15% of profits), which adds up to 67,000 euros over the average entrepreneurial spell. For new entrepreneurs, the option of returning to paid employment is worth 82,000 euros. The main source of option value is not the unobserved heterogeneity in entrepreneurial abilities but rather the random-walk component of productivity. Together, unobserved benefits and this option value explain 42% of firm creations.
Sylvain Catherine, Thomas Chaney, David Thesmar, David Sraer, Zongbo Huang (Under Revision), Quantifying Reduced-Form Evidence on Collateral Constraints (R&R Journal of Finance).
Abstract: While a mature literature shows that credit constraints causally affect firm-level investment, this literature provides little guidance to quantify the economic effects implied by these findings. Our paper attempts to fill this gap in two ways. First, we use a structural model of firm dynamics with collateral constraints, and estimate the model to match the firm-level sensitivity of investment to collateral values. We estimate that firms can only pledge about 19% of their collateral value. Second, we embed this model in a general equilibrium framework and estimate that, relative to first-best, collateral constraints are responsible for 11% output losses.
This course covers the finance of technological innovation, with a focus on the valuation tools useful in the venture capital industry. These tools include the "venture capital method," comparables analysis, discounted cash flow analysis, contingent-claims analysis. The primary audience for this course is finance majors interested in careers in venture capital or in R&D-intensive companies in health care or information technology.