Ulf von Lilienfeld-Toal

How Did the US Housing Slump Begin? Role of the 2005 Bankruptcy Reform

Most analyses of the recent financial crisis in the US focus on the consequences of the dramatic slump in housing prices that started in the mid-2000s, which led to rising mortgage defaults, shrinking home equity credit and liquidity in the banking system. Yet these accounts do not explain what caused the reversal of housing price growth in the first place. This paper argues that the passage of the 2005 Bankruptcy Reform Act (BAPCPA) contributed significantly to the reversal. The reform generated negative wealth effects for a category of homeowners, lowering prices of their homes, which spread via a process of contagion to the prices of other homes. Evidence consistent with this hypothesis is provided: changes in housing prices and mortgage interest rates at the MSA level following the reform were significantly correlated with BAPCPA-exposure. The results are robust to controls for the size of the pre-2005 price growth, local unemployment rates, rates of new home construction and home vacancies, apart from MSA, house and year dummies.

What is Special About Hedge Fund Activism? Evidence from 13-D Filings

We provide an empirical assessment of two incentivizing mechanisms that help overcome agency costs caused by the separation of ownership and control: namely inside ownership and external blockholdings. Our findings suggest that defining features of these mechanisms, like high ownership and costly (active) effort provision, are important determinants for a successful outcome. On the other hand, the type of activist seems to be of minor importance only. We find that announcements of activist hedge fund holdings are not accompanied with larger abnormal returns than our base-group of activist investors. The only group standing apart with a smaller effect are financial institutions. Our sample covers all Schedule 13D filings from 1985-2012. Incidences of active blockholders are very frequent with over 10000 filings per year (1900 initial filings). Additionally, these events are associated with substantial abnormal returns, 7% for initial lings (4% for all filings).

Excess Returns of Companies with a Distinguished Player

Arbitrage-free asset pricing theory suggests that equilibrium price and equilibrium value of a firm coincide and correctly anticipate the equilibrium effort of a value-enhancing manager, called the distinguished player. This article shows that in equilibrium investors trade shares of such a firm at a discount below equilibrium value and buyers earn excess returns on their investment if the distinguished player can trade anonymously. The resulting prediction that investment in companies with a distinguished player yields excess returns was confirmed by empirical evidence in von Lilienfeld-Toal and Runzi (2007) who report positive abnormal returns for owner-manager firms taken from S&P500 and S&P1500 firms.