EFA 2024 Best Conference Paper Prize

The European Finance Association (EFA) is a professional organization with over 2,500 members, including academics and practitioners dedicated to advancing research, teaching, and practice in finance and economics. The EFA supports high-quality research, fostering knowledge exchange and collaboration at an international level. It serves as a platform for communication and dissemination of research and teaching in these fields, promoting academic integrity and professional standards through its activities.

The EFA organizes an annual meeting every August, which serves as a key forum for its members. It also hosts doctoral events, including a competitive tutorial for PhD students, aimed at supporting the next generation of researchers. Additionally, the Association publishes the Review of Finance, a leading journal in the field.

EFA 2024 Best Conference Paper Prize : "Admissible Surplus Dynamics and the Government Debt Puzzle" by Pierre Collin-Dufresne, Julien Hugonnier, and Elena Perazzi.

Abstract

Is it possible to reconcile the procyclical Government surplus dynamics with the `safe asset status' of sovereign Debt? In an arbitrage-free market, if the aggregate debt value satisfies a transversality condition that rules out `bubbles', then it should equal the present value of future government surpluses. This relation seems to fail when the surplus process is calibrated to historical data in the US (Jiang, Lustig, van Nieuwerburgh, and Xiolan (2022). However, we show that when the government issues only safe bonds in an incomplete but arbitrage-free market, then not all surplus processes are admissible in the sense that they are consistent with both the dynamic budget constraint and a transversality condition. We propose a class of admissible surplus processes that matches empirical properties of US government spending and tax claims without generating a `debt valuation puzzle.'