**The Center performs and disseminates research on the most important and pressing issues in risk and portfolio management in financial markets.**

### Who we are

The UC Berkeley Center for Risk Management Research was established on July 1, 2013 as the successor to the Coleman Fung Risk Management Research Center. (more)

### Site News

Kyong Shik Eom's Risk Center working paper (#2016-04) "The effect of listing switches from a growth market to a main board: An alternative perspective," has been published in Emerging Markets Review Volume 29, December 2016, Pages 246–273 (PDF of article)

Konstantin Magin's Risk Center working paper (# 2009-01 and 2013-04), "Equity Risk Premium and Insecure Property Rights," has been published in Economic Theory Bulletin. The final publication is available here.

The Consortium for Data Analytics in Risk (CDAR) is an industry partnership working in close collaboration with the Risk Center, and funded by State Street Bank and Trust. The CDAR website went live on 8/28/15.

### Presentations and Speaking Engagements

**Samim Ghamami** presented “Static Models of Central Counterparty Risk” at the upcoming “Regulating Systemic Risk: Insights from Mathematical Modeling” workshop at the Isaac Newton Institute for Mathematical Sciences at University of Cambridge between December 15th and December 19th, 2015

**Alex Shkolnik** presented "Systemic Risk in the Repo Market" at the Consortium for Systemic Risk Meeting (CSRA) on December 15th, 2015

**Global Derivatives USA**

**Speaker: Lisa Goldberg
Date**: November 17, 2015

"On a Convex Measure of Drawdown Risk"

**Stanford University**

**Speaker: Lisa Goldberg
Date:** November 5, 2015

Center for Financial and Risk Analytics Seminar

"Futures Financing Rates"

**Northfield Conference
Speaker: Lisa Goldberg
Date: **October 8, 2015

"What Would Yale Do if it Were Taxable"

### Newest Working Papers

** Infinite Horizon CCAPM with Stochastic Taxation and Monetary Policy
**Konstantin Magin

This paper derives the infnite horizon CCAPM with heterogeneous agents, stochastic dividend taxation and monetary policy. I find that under reasonable assumptions on assets' dividends and probability distributions of the future dividend taxes and consumption, the model implies the constant price/after-tax dividend ratios. I also obtain that the higher current and expected dividend tax rates imply lower current asset prices. Finally, contrary to popular belief, monetary policy is neutral, in the long run, with respect to the real equilibrium asset prices.

**Comparative Statics in Finite Horizon Finance Economies with Stochastic Taxation**

**Konstantin Magin**

This paper studies comparative statics of Financial Markets (FM) equilibria in the finite horizon General Equilibrium with Incomplete Markets (GEI) model with respect to changes in stochastic tax rates imposed on agent’s endowments and dividends. We show that under reasonable assumptions, without assuming CRRA and identical agents, an increase in the current dividend tax rate unambiguously reduces current asset prices. The paper also finds that there exists a bound B such that for a coefficient of relative risk aversion less than B, an increase in a future dividend tax rate reduces current price of tradable assets. At the same time, for a coefficient of relative risk aversion greater than B, an increase in a future dividend tax rate boosts the current price of tradable assets. Finally, for a coefficient of relative risk aversion equal to B, an increase in a future dividend tax rate leaves current consumption and current price of tradable assets unchanged. As a special case, under additional assumptions, B is equal to 1. Also, under reasonable assumptions, an increase in the current endowment tax rate reduces current asset prices, while an increase in a future endowment tax rate boosts current asset prices.

**The effect of listing switches from a growth market to a main board: An alternative perspective**

Jong-Ho Park, Ki Beom Binh, and Kyong Shik Eom

Published in Emerging Markets Review Volume 29, December 2016, Pages 246–273 (PDF of article)

We examine whether firms switching listings from the Korean growth market (KOSDAQ) to the main board (KOSPI) experienced improved trading-related market quality. We focus on market macrostructure and use a difference-in-difference technique with nearest matching. Contrary to previous research and practitioners’ opinions, we find that trading-related market quality mostly deteriorated or remained unchanged following the switch, indicating that the specific market macrostructure of a country matters. Listing switches produce a negative externality by weakening KOSDAQ and thereby impairing funding for innovative new firms, suggesting that policymakers should encourage firms whose characteristics fit the standalone growth market to remain listed there.

**Stochastic Taxation and REITS Pricing Bubbles: A Statistical Analysis**

Robert H. Edelstein and Konstantin Magin

Using a modified Consumption Capital Asset Pricing Model (CCAPM) with stochastic taxation, we create estimates of fundamental values and fundamental overall rates of returns for United States Real Estate Investment Trusts (REITs) for our data sample, 1972 — 2013. Comparing actual, observed REITs prices (and overall rates of return) with model-generated fundamental values (and fundamental overall rates of return), we examine the presence of bubbles. For our purposes, for publicly traded equity REITs, we define a bubble to be the difference between actual stock market price (overall rates of return) and fundamental value (fundamental overall rate of return). United States REITs have, among other features, special rules governing dividend distributions and corporate taxation treatment that makes them an especially attractive and a preferred vehicle to test the presence of pricing and rate of return bubbles. Using this notion for bubbles, our study suggests that during the sample time horizon, United States REITs experienced statistically significant price and rates of return bubbles for a preponderance of the time.

**Diversification Preferences in the Theory of Choice**

Enrico G. De Giorgi and Ola Mahmoud

Diversification represents the idea of choosing variety over uniformity. Within the theory of choice, desirability of diversification is axiomatized as preference for a convex combination of choices that are equivalently ranked. This corresponds to the notion of risk aversion when one assumes the von-Neumann-Morgenstern expected utility model, but the equivalence fails to hold in other models. This paper reviews axiomatizations of the concept of diversification and their relationship to the related notions of risk aversion and convex preferences within different choice theoretic models. The survey covers model-independent diversification preferences, preferences within models of choice under risk, including expected utility theory and the more general rank-dependent expected utility theory, as well as models of choice under uncertainty axiomatized via Choquet expected utility theory. Remarks on interpretations of diversication preferences within models of behavioral choice are given in the conclusion.

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