Capital Regulation on Bank Capital, Efficiency and Risk Taking

I empirically assess how capital regulations under Basel impact capital adequacy ratios, portfolio risk levels and cost efficiency of U.S. banks using IV-GMM estimations. After extracting and constructing data from the quarterly call reports of U.S. banks between 2001-2016, I examine the empirical relationships between banks’ capital, risk and cost efficiency in a simultaneous framework. I further look at their relationships by dividing the sample into different size and ownership classes, as well as the most and least efficient banks. Overall, the results of this study demonstrate that bank portfolio allocations are very sensitive to the risk based capital regulation. The empirical evidence suggests that more efficient banks increase capital holdings and take on greater credit risk (NPL) while reduce overall risk (RWA). This study also finds evidence that capital buffer has an impact on capital and risk adjustments as well as cost efficiency. Well capitalized banks tend to maintain a large buffer stock of capital. The adjustments in risk and capital are positively or negatively related depending on the measure of risk.

A Spatial Analysis of Financial Interconnectness of U.S. Banks 

In this study, I explore the spatial dependency by adapting a spatial error model that allows for correlated error terms in the cross-sectional variation in the context of financial markets. I use balance sheet data of US. banks during 2001 and 2016. The aim is to identify to what extent different linkages between markets affect banks’ behavior. I use clustering method to map the spatial distance/closeness of financial markets and analyze the degree of spatial dependence among them. The comparison of FE,  GMM models with spatial fixed effects models provide clear evidence on the existence of unobserved spatial effects in the interbank network on individual bank risk, capital and efficiency levels and that such effects can be captured by the error term in the form of the non-systematic risk of neighboring banks.

Option Returns and Volatility Risk Premium

Option markets are often considered as markets for trading volatility. The idea is that options for which implied volatility is much lower than realized volatility are too ’cheap’ and those for which implied volatility is much higher are too ‘expensive’. Thus, the difference between historical realized volatility and Black-Scholes implied volatility can be seen as the ‘value’ of the stock. This paper explores whether ‘value’ of the options is priced in the cross section of individual equity options. I tested the performance of proposed strategies on individual options on S&P 500 stocks between 1996 and 2013. The findings cannot be explained by risk factors like SMB, HML, and MOM; or by stock characteristics like size, book-to-market, leverage, etc.

Effectiveness of Seat Belts in Reducing Fatal and Nonfatal Injuries Accounting for Sample Selection

This paper estimated seatbelt effectiveness in reducing fatal and nonfatal injuries and
the risk factors contributing to different levels of injury severities involved in two-vehicle
road crashes in the United States. I used FARS data from 2008-2011 after correcting for sampling bias by applying Levitt and Porter’s strategy. Using ordered probit model and propensity score method, the findings from this study provided a better understanding of the factors that may mitigate or exacerbate the degree of injury so that transportation planners can effectively develop safety countermeasures.