Latest documents http://publikationen.ub.uni-frankfurt.de/index/index/ Tue, 21 May 2013 09:22:43 +0200 Tue, 21 May 2013 09:22:43 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29900 Ziel meiner Dissertation ist die empirische Analyse von Auswirkungen der sozialen Interaktion zwischen Akteuren auf Finanzmärkten. In meinem ersten Aufsatz stelle ich ein Marktpreismodell vor, welches dem Einfluss durch soziale Interaktion Rechnung trägt. Mit Hilfe dieses Modells gehe ich der Fragestellung nach, ob soziale Interaktion zwischen Marktteilnehmern eine stabilisierende oder eine destabilisierende Wirkung auf Finanzmärkte hat. Mit meinem zweiten Aufsatz untersuche ich das Verhalten von Aktienanalysten, die als wesentlicher Impulsgeber für Finanzmärkte gelten. Konkret stelle ich heraus, ob Analysten stärker von anderen Analysten beeinflusst werden, wenn diese im gleichen Land bzw. in der gleichen Stadt arbeiten oder wenn sogar ein regelmäßiger Meinungsaustausch erfolgt. Beides setzte ich ins Verhältnis zum vorherrschenden Marktumfeld. In meinem dritten Aufsatz beschäftige ich mich mit der sozialen Interaktion zwischen Fondsmanagern. Diese verwalten in etwa ein Drittel des frei handelbaren Aktienvermögens und haben folglich einen nennenswerten Einfluss auf Finanzmärkte. Mit Hilfe einer neuartigen Schätzmethode bestimme ich die Größe des sozialen Einflusses und untersuche auch hier temporale Variationen im Verhältnis zum zu Grunde liegenden Marktumfeld. Des Weiteren zerlege ich die Gesamtgröße des sozialen Einflusses in zwei Komponenten, die zum einen den Einfluss im Rahmen der reinen Beobachtung und zum anderen den Einfluss durch Kommunikation reflektieren. Frederik König doctoralthesis http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29900 Tue, 21 May 2013 09:22:43 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29737 In this thesis the behavior of banks in financial markets which banks frequently use to obtain short-term as well as long-term financing is studied. In the first chapter we incorporate an interbank market for collateralized lending among banks into a dynamic, stochastic, general equilibrium (DSGE) framework to analyze the impact of variations in the expected value of the collateral on the interbank lending volume. We find that a central bank which decides to lower the haircut on eligible collateral in repurchase agreements is able to stimulate interbank markets. In the second chapter a microeconomic model of bank behavior on the interbank market is set up to analyze the impact of risk-taking behavior of interbank borrowing banks and uncertainty about their balance sheet quality on the lending behavior of interbank lending banks. It is found that the disruptions on the interbank market are the result of optimal behavior on the part of interbank lending banks in response to the uncertainty about the balance sheet quality of an interbank borrowing bank. In the third chapter we use monthly data on German bank bond spreads and regress it on bank-specific risk factors to assess the degree of market discipline in the German bank bond market. The regression results for the whole German bank bond market indicate that the bond spread does not show signs of market discipline. However, a structural break analysis uncovers that since the beginning of the financial crisis the German bank bond market exhibits at least a weak form of market discipline for bonds issued by medium-size and large banks. Björn Hilberg doctoralthesis http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29737 Fri, 03 May 2013 08:36:08 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/28703 other http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/28703 Fri, 26 Apr 2013 11:31:50 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29384 The efficacy of monetary authority actions depends primarily on the ability of the monetary authority to affect inflation expectations, which ultimately depend on agents' trust. We propose a model embedding trust cycles, as emerging from sequential coordination games between atomistic agents and the policy maker, in a monetary model. Trust affects agents' stochastic discount factor, namely the price of future risk, and their expectation formation process: these effects in turn interact with the monetary transmission mechanism. Using data from the Eurobarometer survey we analyze the link between trust on the one side and the transmission mechanism of shocks and of the policy rate on the other: data show that the two interact significantly and in a way comparable to the obtained in our model. Dirk Bursian; Ester Faia workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29384 Fri, 19 Apr 2013 08:13:26 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29383 This paper investigates risk-taking in the liquid portfolios held by a large panel of Swedish twins. We document that the portfolio share invested in risky assets is an increasing and concave function of financial wealth, leading to different risk sensitivities across investors. Human capital, which we estimate directly from individual labor income, also drives risk-taking positively, while internal habit and expenditure commitments tend to reduce it. Our micro findings lend strong support to decreasing relative risk aversion and habit formation preferences. Furthermore, heterogeneous risk sensitivities across investors help reconcile individual preferences with representative-agent models. Laurent E. Calvet; Paolo Sodini workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29383 Fri, 19 Apr 2013 08:07:12 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29382 We develop a dynamic network model whose links are governed by banks' optmizing decisions and by an endogenous tâtonnement market adjustment. Banks in our model can default and engage in firesales: risk is transmitted through direct and cascading counterparty defaults as well as through indirect pecuniary externalities triggered by firesales. We use the model to assess the evolution of the network configuration under various prudential policy regimes, to measure banks' contribution to systemic risk (through Shapley values) in response to shocks and to analyze the effects of systemic risk charges. We complement the analysis by introducing the possibility of central bank liquidity provision. Marcel Bluhm; Ester Faia; Jan Pieter Krahnen workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29382 Fri, 19 Apr 2013 07:52:54 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29381 This paper analyzes the equilibrium pricing implications of contagion risk in a Lucas-tree economy with recursive preferences and jumps. We introduce a new economic channel allowing for the possibility that endowment shocks simultaneously trigger a regime shift to a bad economic state. We document that these contagious jumps have far-reaching asset pricing implications. The risk premium for such shocks is superadditive, i.e. it is 2.5\% larger than the sum of the risk premia for pure endowment shocks and regime switches. Moreover, contagion risk reduces the risk-free rate by around 0.5\%. We also derive semiclosed-form solutions for the wealth-consumption ratio and the price-dividend ratios in an economy with two Lucas trees and analyze cross-sectional effects of contagion risk qualitatively. We find that heterogeneity among the assets with respect to contagion risk can increase risk premia disproportionately. In particular, big assets with a large exposure to contagious shocks carry significantly higher risk premia. Nicole Branger; Holger Kraft; Christoph Meinerding workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29381 Fri, 19 Apr 2013 07:42:21 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29581 S. 2 Editorial ++++ S. 3 Personalien ++++ S. 5 Neues vom Fachbereich ++++ S. 7 Studentische Initiativen ++++ S. 9 Wissenschaftlicher Nachwuchs ++++ S. 11 Veranstaltungen ++++ S. 12 Studieren im Ausland ++++ S. 13 Preise, Auszeichnungen ++++ S. 16 Alumni im Portrait ++++ S. 18 Pinnwand periodicalpart http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29581 Thu, 18 Apr 2013 09:00:41 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29380 This paper presents a theory that explains why it is beneficial for banks to engage in circular lending activities on the interbank market. Using a simple network structure, it shows that if there is a non-zero bailout probability, banks can significantly increase the expected repayment of uninsured creditors by entering into cyclical liabilities on the interbank market before investing in loan portfolios. Therefore, banks are better able to attract funds from uninsured creditors. Our results show that implicit government guarantees incentivize banks to have large interbank exposures, to be highly interconnected, and to invest in highly correlated, risky portfolios. This can serve as an explanation for the observed high interconnectedness between banks and their investment behavior in the run-up to the subprime mortgage crisis. Tim Eisert; Christian Eufinger workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29380 Thu, 18 Apr 2013 08:58:50 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29379 This paper proposes a new regulatory approach that implements capital requirements contingent on managerial compensation. We argue that excessive risk taking in the financial sector originates from the shareholder moral hazard created by government guarantees rather than from corporate governance failures within banks. The idea of the proposed regulation is to utilize the compensation scheme to drive a wedge between the interests of top management and shareholders to counteract shareholder risk-shifting incentives. The decisive advantage of this approach compared to existing regulation is that the regulator does not need to be able to properly measure the bank investment risk, which has been shown to be a difficult task during the 2008-2009 financial crisis. Christian Eufinger; Andrej Gill workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29379 Thu, 18 Apr 2013 08:49:05 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29378 We assess the effects of monetary policy on bank risk to verify the existence of a risk-taking channel — monetary expansions inducing banks to assume more risk. We first present VAR evidence confirming that this channel exists and tends to concentrate on the bank funding side. Then, to rationalize this evidence we build a macro model where banks subject to runs endogenously choose their funding structure (deposits vs. capital) and risk level. A monetary expansion increases bank leverage and risk. In turn, higher bank risk in steady state increases asset price volatility and reduces equilibrium output. Ignazio Angeloni; Ester Faia; Marco Lo Duca workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29378 Thu, 18 Apr 2013 08:27:58 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29377 Euro area data show a positive connection between sovereign and bank risk, which increases with banks’ and sovereign long run fragility. We build a macro model with banks subject to incentive problems and liquidity risk (in the form of liquidity based banks’ runs) which provides a link between endogenous bank capital and macro and policy risk. Our banks also invest in risky government bonds used as capital buffer to self-insure against liquidity risk. The model can replicate the positive connection between sovereign and bank risk observed in the data. Central bank liquidity policy, through full allotment policy, is successful in stabilizing the spiraling feedback loops between bank and sovereign risk. Matthieu Darracq-Pariès; Diego Rodríguez-Palenzuela; Ester Faia workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29377 Thu, 18 Apr 2013 08:05:05 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29376 This paper studies the relation between firm value and a firm's growth options. We find strong empirical evidence that (average) Tobin's Q increases with firm-level volatility. However, the significance mainly comes from R&D firms, which have more growth options than non-R&D firms. By decomposing firm-level volatility into its systematic and unsystematic part, we also document that only idiosyncratic volatility (ivol) has a significant effect on valuation. Second, we analyze the relation of stock returns to realized contemporaneous idiosyncratic volatility and R&D expenses. Single sorting according to the size of idiosyncratic volatility, we only find a significant ivol anomaly for non-R&D portfolios, whereas in a four-factor model the portfolio alphas of R&D portfolios are all positive. Double sorting on idiosyncratic volatility and R&D expenses also reveals these differences between R&D and non-R&D firms. To simultaneously control for several explanatory variables, we also run panel regressions of portfolio alphas which confirm the relative importance of idiosyncratic volatility that is amplified by R&D expenses. Holger Kraft; Eduardo Schwartz; Farina Weiss workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29376 Thu, 18 Apr 2013 07:56:32 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29374 We study whether prices of traded options contain information about future extreme market events. Our option-implied conditional expectation of market loss due to tail events, or tail loss measure, predicts future market returns, magnitude, and probability of the market crashes, beyond and above other option-implied variables. Stock-specific tail loss measure predicts individual expected returns and magnitude of realized stock-specific crashes in the cross-section of stocks. An investor that cares about the left tail of her wealth distribution benefits from using the tail loss measure as an information variable to construct managed portfolios of a risk-free asset and market index. Grigory Vilkov; Yan Xiao workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29374 Thu, 18 Apr 2013 07:47:38 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29714 Recently, we evaluated a fiscal consolidation strategy for the United States that would bring the government budget into balance by gradually reducing government spending relative to GDP to the ratio that prevailed prior to the crisis (Cogan et al, JEDC 2013). Specifically, we published an analysis of the macroeconomic consequences of the 2013 Budget Resolution that was passed by the U.S. House of Representatives in March 2012. In this note, we provide an update of our research that evaluates this year’s budget reform proposal that is to be discussed and voted on in the House of Representative in March 2013. Contrary to the views voiced by critics of fiscal consolidation, we show that such a reduction in government purchases and transfer payments can increase GDP immediately and permanently relative to a policy without spending restraint. Our research makes use of a modern structural model of the economy that incorporates the long-standing essential features of economics: opportunity costs, efficiency, foresight and incentives. GDP rises because households take into account that spending restraint helps avoid future increases in tax rates. Lower taxes imply less distorted incentives for work, investment and production relative to a scenario without fiscal consolidation and lead to higher growth. John F. Cogan; John B. Taylor; Volker Wieland; Maik Hendrik Wolters workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29714 Wed, 17 Apr 2013 13:26:26 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29373 We test whether investor mood affects trading with data on all stock market transactions in Finland, utilizing variation in daylight and local weather. We find some evidence that environmental mood variables (local weather, length of day, daylight saving and lunar phase) affect investors’ direction of trade and volume. The effect magnitudes are roughly comparable to those of classical seasonals, such as the Monday effect. The statistical significance of the mood variables is weak in many cases, however. Only very little of the day-to-day variation in trading is collectively explained by all mood variables and calendar effects, but lower frequency variation seems connected to holiday seasons. Markku Kaustia; Elias Rantapuska workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29373 Wed, 17 Apr 2013 08:55:29 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29371 We use unique data from financial advisers’ professional exam scores and combine it with other variables to create an index of financial sophistication. Using this index to explain long-term stock return expectations, we find that more sophisticated financial advisers tend to have lower return expectations. A one standard deviation increase in the sophistication index reduces expected returns by 1.1 percentage points. The effect is stronger for emerging market stocks (2.3 percentage points). The sophistication effect contributes 60% to the model fit, while employer fixed effects combined contribute less than 30%. These results help understand the formation of potentially excessively optimistic expectations. Markku Kaustia; Antti Lehtoranta; Vesa Puttonen workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29371 Wed, 17 Apr 2013 08:42:50 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29370 A natural experiment in which customer-owned mutual companies converted to publicly listed firms created a plausibly exogenous shock to the stock market participation status of tens of thousands of people. We find the shock changed the way people vote in the affected areas, with a 10% increase in share-ownership rate being followed by a 1.3%–3.1% increase in right-of-center vote share. The institutional details and additional tests suggest that wealth, liquidity, and tax-related incentives cannot fully explain the results. A plausible explanation is that the associated increase in the salience of stock ownership causes a shift in voters’ attention. Markku Kaustia; Samuli Knüpfer; Sami Torstila workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29370 Tue, 16 Apr 2013 15:48:32 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29653 Debt-induced crises, including the subprime, are usually attributed exclusively to supply-side factors. We uncover an additional factor contributing to debt culture, namely social influences emanating from the perceived average income of peers. Using unique information from a representative household survey of the Dutch population that circumvents the need to define the social circle, we consider collateralized, consumer, and informal loans. We find robust social effects on borrowing – especially among those who consider themselves poorer than their peers – and on indebtedness, suggesting a link to financial distress. We check the robustness of our results using several approaches to rule out spurious associations and handle correlated effects. Dimitris Georgarakos; Michael Haliassos; Giacomo Pasini workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29653 Mon, 15 Apr 2013 11:22:21 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/27518 The Master’s program in Money and Finance (MMF) is an innovative joint venture of the Department of Money and Macroeconomics and of the Department of Finance, both located in the new House of Finance. The program offers promising students from all over the world an intellectually stimulating and challenging setting in which to prepare for their professional careers in central banking, commercial banking, insurance and other financial services. By being located in Frankfurt, one of the world's leading financial centers and the only city in the world with two central banks (the ECB and the German Bundesbank), it offers unique opportunities for interaction with practitioners. The program is taught exclusively in English; knowledge of German is not required for admission to, or completion of the program. It has been designed with a view to establishing itself as a leading Masters program integrating studies in monetary economics, macroeconomics and finance and a major gateway to high-profile jobs in the banking and financial sector. book http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/27518 Wed, 27 Feb 2013 13:05:45 +0100 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/28295 other http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/28295 Sat, 02 Feb 2013 15:06:21 +0100 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/28282 other http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/28282 Sat, 02 Feb 2013 12:37:14 +0100 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/28051 other http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/28051 Sat, 02 Feb 2013 12:00:41 +0100 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/28255 other http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/28255 Fri, 01 Feb 2013 09:21:16 +0100 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/28254 other http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/28254 Fri, 01 Feb 2013 09:18:24 +0100