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In this paper, I examine the potential of mobile alerting services empowering investors to react quickly to critical market events. Therefore, an analysis of short-term (intraday) price effects is performed. I find abnormal returns to company announcements which are completed within a timeframe of minutes. To make use of these findings, these price effects are predicted using pre-defined external metrics and different estimation methodologies. Compared to previous research, the results provide support that artificial neural networks and multiple linear regression are good estimation models for forecasting price effects also on an intraday basis. As most of the price effect magnitude and effect delay can be estimated correctly, it is demonstrated how a suitable mobile alerting service combining a low level of user-intrusiveness and timely information supply can be designed.
This paper shows that a capital budgeting process in which the division manager is required to engage in personally costly influence activities prior to a project approval has beneficial incentive effects: It provides the manager with incentives to acquire costly information about project prospects and helps to elicit the revelation of the acquired information. As a consequence, imposing influence costs on the manager can lead to improved capital allocations. The optimal level of influence costs, chosen by the firm, trades off ex ante incentives for information acquisition against efficient use of the acquired information ex post.
Asset securitisation as a risk management and funding tool : what does it hold in store for SMES?
(2005)
The following chapter critically surveys the attendant benefits and drawbacks of asset securitisation on both financial institutions and firms. It also elicits salient lessons to be learned about the securitisation of SME-related obligations from a cursory review of SME securitisation in Germany as a foray of asset securitisation in a bank-centred financial system paired with a strong presence of SMEs in industrial production. JEL Classification: D81, G15, M20
Although the commoditisation of illiquid asset exposures through securitisation facilitates the disciplining effect of capital markets on the risk management, private information about securitised debt as well as complex transaction structures could possibly impair the fair market valuation. In a simple issue design model without intermediaries we maximise issuer proceeds over a positive measure of issue quality, where a direct revelation mechanism (DRM) by profitable informed investors engages endogenous price discovery through auction-style allocation preference as a continuous function of perceived issue quality. We derive an optimal allocation schedule for maximum issuer payoffs under different pricing regimes if asymmetric information requires underpricing. In particular, we study how the incidence of uninformed investors at varying levels of valuation uncertainty and their function of clearing the market effects profitable informed investment. We find that the issuer optimises own payoffs at each valuation irrespective of the applicable pricing mechanism by awarding informed investors the lowest possible allocation (and attendant underpricing) that still guarantees profitable informed investment. Under uniform pricing the composition of the investor pool ensures that informed investors appropriate higher profit than uninformed types. Any reservation utility by issuers lowers the probability of information disclosure by informed investors and the scope of issuers to curtail profitable informed investment. JEL Classifications: D82, G12, G14, G23
As a sign of ambivalence in the regulatory definition of capital adequacy for credit risk and the quest for more efficient refinancing sources collateral loan obligations (CLOs) have become a prominent securitisation mechanism. This paper presents a loss-based asset pricing model for the valuation of constituent tranches within a CLO-style security design. The model specifically examines how tranche subordination translates securitised credit risk into investment risk of issued tranches as beneficial interests on a designated loan pool typically underlying a CLO transaction. We obtain a tranchespecific term structure from an intensity-based simulation of defaults under both robust statistical analysis and extreme value theory (EVT). Loss sharing between issuers and investors according to a simplified subordination mechanism allows issuers to decompose securitised credit risk exposures into a collection of default sensitive debt securities with divergent risk profiles and expected investor returns. Our estimation results suggest a dichotomous effect of loss cascading, with the default term structure of the most junior tranche of CLO transactions (“first loss position”) being distinctly different from that of the remaining, more senior “investor tranches”. The first loss position carries large expected loss (with high investor return) and low leverage, whereas all other tranches mainly suffer from loss volatility (unexpected loss). These findings might explain why issuers retain the most junior tranche as credit enhancement to attenuate asymmetric information between issuers and investors. At the same time, the issuer discretion in the configuration of loss subordination within particular security design might give rise to implicit investment risk in senior tranches in the event of systemic shocks. JEL Classifications: C15, C22, D82, F34, G13, G18, G20
Serial correlation in dynamic panel data models with weakly exogenous regressor and fixed effects
(2005)
Our paper wants to present and compare two estimation methodologies for dynamic panel data models in the presence of serially correlated errors and weakly exogenous regressors. The ¯rst is the ¯rst di®erence GMM estimator as proposed by Arellano and Bond (1991) and the second is the transformed Maximum Likelihood Estimator as proposed by Hsiao, Pesaran, and Tahmiscioglu (2002). Thereby, we consider the ¯xed e®ects case and weakly exogenous regressors. The ¯nite sample properties of both estimation methodologies are analysed within a simulation experiment. Furthermore, we will present an empirical example to consider the performance of both estimators with real data. JEL Classification: C23, J64
We propose a new framework for modelling the time dependence in duration processes being in force on financial markets. The pioneering ACD model introduced by Engle and Russell (1998) will be extended in a manner that the duration process will be accompanied by an unobservable stochastic process. The Discrete Mixture ACD framework provides us with a general methodology which puts the idea into practice. It is established by introducing a discrete-valued latent regime variable which can be justified in the light of recent market microstructure theories. The empirical application demonstrates its ability to capture specific characteristics of intraday transaction durations while alternative approaches fail. JEL classification: C41, C22, C25, C51, G14.
In recent methodological work the well known ACD approach, originally introduced by Engle and Russell (1998), has been supplemented by the involvement of an unobservable stochastic process which accompanies the underlying process of durations via a discrete mixture of distributions. The Mixture ACD model, emanating from the specialized proposal of De Luca and Gallo (2004), has proved to be a moderate tool for description of financial duration data. The use of one and the same family of ordinary distributions has been common practice until now. Our contribution incites to use the rich parameterized comprehensive family of distributions which allows for interacting different distributional idiosyncrasies. JEL classification: C41, C22, C25, C51, G14.
The effects of vocational training programmes on the duration of unemployment in Eastern Germany
(2005)
Vocational training programmes have been the most important active labour market policy instrument in Germany in the last years. However, the still unsatisfying situation of the labour market has raised doubt on the efficiency of these programmes. In this paper, we analyse the effects of the participation in vocational training programmes on the duration of unemployment in Eastern Germany. Based on administrative data for the time between the October 1999 and December 2002 of the Federal Employment Administration, we apply a bivariate mixed proportional hazards model. By doing so, we are able to use the information of the timing of treatment as well as observable and unobservable influences to identify the treatment effects. The results show that a participation in vocational training prolongates the unemployment duration in Eastern Germany. Furthermore, the results suggest that locking-in effects are a serious problem of vocational training programmes. JEL Classification: J64, J24, I28, J68
The effects of public policy programmes which aim at internalising spill-overs due to successful innovation are analysed in a sequential double-sided moral hazard double-sided adverse selection framework. The central focus lies in analysing their impact on contract design. We show that in our framework only ex post grants are a robust instrument for implementing the first-best situation, whereas the success of guarantee programmes, ex ante grants and some public-private partnerships depends strongly on the characteristics of the project: in certain cases they not only give no further incentives but even destroy contract mechanisms and so worsen the outcome.