Adam Smith Business School

Professor Paul Ehling, Norwegian Business School

"No Short in Sight"
Wednesday, 25 October. 3 pm
Room 492. Adam Smith Business School

Abstract

In our economy with short-sales constraints and learning from experience, constrained investors become nonparticipants and have reduced attention to the stock market. Fluctuations in the market view are elevated, learning is slower in the aggregate, the market price of risk and the real short rate of interest are more volatile than in an unconstrained economy. Exuberance-driven investors enter the stock market with high leverage in times of low market price of risk and exit in disappointment. If nonparticipants never reenter, the market price of risk can be higher, implying a large wedge between average returns for participants and nonparticipants.

Bio

Paul Ehling is a professor of finance at BI Norwegian Business School in Oslo, Norway. Before joining BI in 2005, he served on the faculty of the Pennsylvania State University. He received a PhD in Finance from HEC Lausanne and FAME in December 2003. Ehling has consulted on corporate risk management, interest rate risk management, risk capital, valuation of derivatives for several corporations and worked for a consultancy firm.

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First published: 11 October 2023