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Category Archives: G02

Word-of-Mouth Effects in the Holdings and Trading Activities among Canadian Mutual Fund Managers

By Chang Liu

The study tests the word-of-mouth effects among mutual fund managers in Canada with methodology based on a previous study (Hong et al., 2005), with multiple modifications to it such as the method to locate the mutual fund managers. The results confirm the original findings yet with unexpected outcomes. This study demonstrates smaller word-of-mouth effects compared to the original study and reverse word-of-mouth effects in the largest financial city of Canada. The possible interpretations are further discussed in detail, among which a dynamic model of word-of-mouths effects and product differentiation is introduced. The study also discusses the market structure’s possible implications on such dynamic models.

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Advisor: Jia Li | JEL Codes: G02, G15, G20, G21 | Tagged: Word-of-Mouth, Product Differentiation, Herding Behavior

Understanding SME Finance: Determinants of Relationship Lending

By Sean Suk Hyun

Much of the existing literature in small and medium-sized enterprise (SME) finance surveys the impact of borrower and lender characteristics on firms’ credit availability, and it has already been established that there is a link between strong firm-bank relationship and higher level of credit availability. In this paper, I focus on what determines the strength of relationship, measured by length and exclusivity. In particular, I was able to build an original metric to gauge the strength of relationship using the inverse value of the number of financial institution that a firm deals with. Using a set of regressions, I confirm the existing theories that size of the firm and type of ownership matters. Small firms and sole proprietorships tend to have longer and more exclusive relationships, which implies their reliance on relationship lending. Firm owner characteristics are shown to be somewhat important, in that it serves as proxies for a given firm’s creditworthiness.

Honors Thesis

Advisor: Grace Kim, Michelle Connolly | JEL Codes: G02, G21, G30, L14 | Tagged: Asymmetrical information, Credit Rationing, Relationship Lending, SME Finance

The Hidden Costs of Central Bank Borrowing

By Shane Hunt

This paper explores a previously overlooked unintended consequence of a private bank accepting Central Bank loans as a lender of last resort. Applying the basic Markowitz Security Model, I explore the potential effect of a private bank accepting a Central Bank loan as a signal of increased risk of investment in that private bank to the private markets. Finding a possibility that private investors will charge a penalty risk premium for having sought Central Bank financing, I consider the effects of this premium in three different game theoretic scenarios, each with a different set of assumptions that could apply in different Economic settings. Depending on the specific environment, possible effects include dependence on Central Bank financing, bankruptcy, or an eventual return to the private financial markets for future funding.

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Advisor: Marjorie McElroy, Nir Jaimovich | JEL Codes: E58, G02, G21, G28, G32 | Tagged: Banking, Central Banking, Finance

Questions?

Undergraduate Program Assistant
Jennifer Becker
dus_asst@econ.duke.edu

Director of the Honors Program
Michelle P. Connolly
michelle.connolly@duke.edu