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We analyze global data about electricity generation and document that the risk exposure of a firm’s owners and its workers depends on competitors’ ability or willingness to change their output in response to productivity shocks. Competitor inflexibility appears to be a risk factor: the sales of firms with more inflexible competitors respond more strongly to aggregate sales shocks. As a consequence, competitor inflexibility also affects the stability of firms’ total wage- and dividend-payments. Firms with relatively flexible competitors appear to smoothen both wages and dividends, but an increase in competitor inflexibility is associated with less dividend-smoothing and more wage-smoothing. Our evidence supports the idea that labor productivity risk associated with competitor inflexibility should be borne by firms’ shareholders, rather than by their workers.
Low risk anomalies?
(2016)
This paper shows theoretically and empirically that beta- and volatility-based low risk anomalies are driven by return skewness. The empirical patterns concisely match the predictions of our model which generates skewness of stock returns via default risk. With increasing downside risk, the standard capital asset pricing model increasingly overestimates required equity returns relative to firms' true (skew-adjusted) market risk. Empirically, the profitability of betting against beta/volatility increases with firms' downside risk. Our results suggest that the returns to betting against beta/volatility do not necessarily pose asset pricing puzzles but rather that such strategies collect premia that compensate for skew risk.
Using merger announcements and applying methods from computational linguistics we find strong evidence that stock prices under-react to information in financial media. A one standard deviation increase in the media-implied probability of merger completion increases the subsequent 12-day return of a long-short merger strategy by 1.2 percentage points. Filtering out the 28% of announced deals with the lowest media-implied completion probability increases the annualized alpha from merger arbitrage by 9.3 percentage points. Our results are particularly pronounced when high-yield spreads are large and on days when only few merger deals are announced. We also document that financial media information is orthogonal to announcement day returns.
The ECB’s Outright Monetary Transactions (OMT) program, launched in summer 2012, indirectly recapitalized periphery country banks through its positive impact on the value of sovereign bonds. However, the regained stability of the European banking sector has not fully transferred into economic growth. We show that zombie lending behavior of banks that still remained undercapitalized after the OMT announcement is an important reason for this development. As a result, there was no positive impact on real economic activity like employment or investment. Instead, firms mainly used the newly acquired funds to build up cash reserves. Finally, we document that creditworthy firms in industries with a high prevalence of zombie firms suffered significantly from the credit misallocation, which slowed down the economic recovery.
SAFE Newsletter : 2016, Q3
(2016)
SAFE Newsletter : 2016, Q4
(2016)
The grammar of global law
(2016)
Legal grammar is understood as the conceptual and linguistic foundation on which legal decisions rest – law’s meta-structure, its argumentative techniques and its systematicity. The essay distinguishes between two ways of thinking about this grammar. The first way of thinking appeals to a grammar as a stabilizing factor, maintaining the coherence of the law. The second way of thinking highlights the asymmetries of power within this structure and perceives legal grammar as the medium carrying the ideological commitments of the law. As the essay ultimately argues, both perspectives react differently to the challenges of globalization that the law is confronted with. While the debate on the grammar(s) of global law is one place where future political order is negotiated, the outcome of the debate is largely open.
Background: Ovarian cancer is mostly associated with pathologically regulated permeability of peritoneal vessels, leading to ascites. Here, we investigated the molecular regulation of endothelial permeability by the vascular endothelial growth factor (VEGF) and both tight and adherens junction proteins (VE-cadherin and claudin 5) with regards to the tumor biology of different ovarian cancer types.
Methods: Serum and ascites samples before and after surgery, as well as peritoneal biopsies of 68 ovarian cancer patients and 20 healthy controls were collected. In serum and ascites VEGF protein was measured by ELISA. In peritoneal biopsies co-localization of VE-cadherin and claudin 5 was investigated using immunohistochemical dual staining. In addition, the gene expression of VE-cadherin and claudin 5 was quantified by Real-time PCR. Differences in VEGF levels, VE-cadherin and claudin 5 gene expression were analyzed in relation to various tumor characteristics (tumor stage, grading, histological subtypes, resection status after surgery) and then compared to controls. Furthermore, human primary ovarian cancer cells were co-cultured with human umbilical vein endothelial cells (HUVEC) and changes in VE-cadherin and claudin 5 were investigated after VEGF inhibition.
Results: VEGF was significantly increased in tumor patients in comparison to controls and accumulates in ascites. The highest VEGF levels were found in patients diagnosed with advanced tumor stages, with tumors of poor differentiation, or in the group of solid / cystic-solid tumors. Patients with residual tumor after operation showed significantly higher levels of VEGF both before and after surgery as compared to tumor-free resected patients. Results of an immunohistochemical double-staining experiment indicated co-localization of VE-cadherin and claudin 5 in the peritoneal vasculature. Compared to controls, expression of VE-cadherin and claudin 5 was significantly suppressed in peritoneal vessels of tumor patients, but there were no significant differences regarding VE-cadherin and claudin 5 expression in relation to different tumor characteristics. A significant positive correlation was found between VE-cadherin and claudin 5 expression. VEGF inhibition in vitro was associated with significant increase in VE-cadherin and claudin 5.
Conclusions: Our results indicate that increased peritoneal permeability in ovarian cancer is due to down-regulation of adhesion proteins via tumor derived VEGF. Advanced ovarian cancer with aggressive tumor biology may be associated with early dysregulation of vascular permeability leading to ascites. These patients may benefit from therapeutic VEGF inhibition.
Objective: Gestational diabetes mellitus (GDM) is associated with substantial morbidity for mothers and their offspring. While clinical and basic research activities on this important disease grow constantly, there is no concise analysis of global architecture of GDM research. Hence, it was the objective of this study to assess the global scientific performance chronologically, geographically and in relation to existing research networks and gender distribution of publishing authors.
Study design: On the basis of the New Quality and Quantity Indices in Science (NewQIS) platform, scientometric methods were combined with modern visualizing techniques such as density equalizing mapping, and the Web of Science database was used to assess GDM-related entries from 1900 to 2012.
Results: Twelve thousand five hundred four GDM-related publications were identified and analyzed. The USA (4295 publications) and the UK (1354 publications) dominated the field concerning research activity, overall citations and country-specific Hirsch-Index, which quantified the impact of a country’s published research on the scientific community. Semi-qualitative indices such as country-specific citation rates ranked New Zealand and the UK at top positions. Annual collaborative publications increased steeply between the years 1990 and 2012 (71 to 1157 respectively). Subject category analysis pointed to a minor interest of public health issues in GDM research. Gender analysis in terms of publication authorship revealed a clear dominance of the male gender until 2005; then a trend towards gender equity started and the activity of female scientists grew visibly in many countries. The country-specific gender analysis revealed large differences, i.e. female scientists dominated the scientific output in the USA, whereas the majority of research was published by male authors in countries such as Japan.
Conclusion: This study provides the first global sketch of GDM research architecture. While North-American and Western-European countries were dominating the GDM-related scientific landscape, a disparity exists in terms of research output between developed and low-resource countries. Since GDM is linked to considerable mortality and morbidity of mothers and their offspring and constitutes a tremendous burden for the healthcare systems in underserved countries, our findings emphasize the need to address disparities by fostering research endeavors, public health programs and collaborative efforts in these nations.
Mitochondrial complex I is a 1MDa membrane protein complex with a central role in aerobic energy metabolism. The bioenergetic core functions are executed by 14 central subunits that are conserved from bacteria to man. Despite recent progress in structure determination, our understanding of the function of the ~30 accessory subunits associated with the mitochondrial complex is still limited. We have investigated the structure of complex I from the aerobic yeast Yarrowia lipolytica by cryo-electron microscopy. Our density map at 7.9Å resolution closely matches the 3.6-3.9Å X-ray structure of the Yarrowia lipolytica complex. However, the cryo-EM map indicated an additional subunit on the side of the matrix arm above the membrane surface, pointing away from the membrane arm. The density, which is not present in any previously described complex I structure and occurs in about 20 % of the particles, was identified as the accessory sulfur transferase subunit ST1. The Yarrowia lipolytica complex I preparation is active in generating H2S from the cysteine derivative 3-mercaptopyruvate, catalyzed by ST1. We thus provide evidence for a link between respiratory complex I and mitochondrial sulfur metabolism.
As part of her tour of Africa, German chancellor Angela Merkel recently (Tuesday, 11 October 2016) visited the Ethiopian capital Addis Ababa, which is also home to the headquarters of the African Union. During a joint press conference with Prime Minister Hailemariam Desalegn, Merkel urged the Ethiopian government to open up politics and halt violent behaviour by police in response to peaceful demonstrations...
Amid increasing regulation, structural changes of the market and Quantitative Easing as well as extremely low yields, concerns about the market liquidity of the Eurozone sovereign debt markets have been raised. We aim to quantify illiquidity risks, especially such related to liquidity dry-ups, and illiquidity spillover across maturities by examining the reaction to illiquidity shocks at high frequencies in two ways:
a) the regular response to shocks using a variance decomposition and,
b) the response to shocks in the extremes by detecting illiquidity shocks and modeling those as ultivariate Hawkes processes.
We find that:
a) market liquidity is more fragile and less predictable when an asset is very illiquid and,
b) the response to shocks in the extremes is structurally different from the regular response.
In 2015 long-term bonds are less liquid and the medium-term bonds are liquid, although we observe that in the extremes the medium-term bonds are increasingly driven by illiquidity spillover from the long-term titles.
How do insiders trade?
(2016)
We characterize how informed investors trade in the options market ahead of corporate news when they receive private, but noisy, information about (i) the timing of the announcement and (ii) its impact on stock prices. Our theoretical framework generates a rich set of predictions about the insiders’ behavior and their maximum expected returns. Three different analyses offer empirical support for our approach. First, predicted trades resemble illegal insider trades documented in SEC litigation cases with insiders being more likely to trade in options that offer higher expected returns. Second, pre-announcement patterns in unusual activity in the options market ahead of significant corporate news are consistent with the predictions of our framework. We employ our approach to characterize informed trading ahead of twelve different types of news including the announcement of earnings, corporate guidance, M&As, product innovations, management changes, and analyst recommendations. Third, to address concerns that pre-announcement patterns are driven by speculation, we show that measures capturing trading activity in call (put) options with high expected returns predict significant positive (negative) corporate news in the aggregate cross-section.
Data show that sovereign risk reduces liquidity, increases funding cost and risk of banks highly exposed to it. I build a model that rationalizes this fact. Banks act as delegated monitors and invest in risky projects and in risky sovereign bonds. As investors hear rumors of increased sovereign risk, they run the bank (via global games). Banks could rollover liquidity in repo market using government bonds as collateral, but as sovereign risk raises collateral values shrink. Overall banks’ liquidity falls (its cost increases) and so does banks’ credit. In this context noisy news (announcements with signal extraction) of consolidation policies are recessionary in the short run, as they contribute to investors and banks pessimism, and mildly expansionary in the medium run. The banks liquidity channel plays a major role in the fiscal transmission.
n traditional portfolio theory, risk management is limited to the choice of the relative weights of the riskless asset and a diversified basket of risky securities, respectively. Yet in industry, risk management represents a central aspect of asset management, with distinct responsibilities and organizational structures. We identify frictions that lead to increased importance of risk management and describe three major challenges to be met by the risk manager. First, we derive a framework to determine a portfolio position's marginal risk contribution and to decide on optimal portfolio weights of active managers. Second, we survey methods to control downside risk and unwanted risks since investors frequently have non-standard preferences which make them seek protection against excessive losses. Third, we point out that quantitative portfolio management usually requires the selection and parametrization of stylized models of financial markets. We therefore discuss risk management approaches to deal with parameter uncertainty, such as shrinkage procedures or re- sampling procedures, and techniques of dealing with model uncertainty via methods of Bayesian model averaging.
This is the ninth post in the blog series „Movements and Institutions“.
This article disputes the conceptualization of institutionalization as a one-way process. Instead, it argues that social movement organizations can make use of contentious tactics while being institutionalized. The environmental NGO Birdlife Malta provides an example to illustrate this argument
This paper is the outcome of a related broader project, exploring the explanatory power of the Legal Theory of Finance, which proposes a new institution-based analytical framework for the analysis of phenomena of financial markets. One of its most important theoretical assumptions, the legal construction of financial markets, is highlighted by the example of the private creation of money by structured finance products in this paper. Further implications can then be shown referring to pari passu clauses and collective action clauses, which are both exhibit a differential application of these legal rules according to the hierarchical status of the respective market participant, and can therefore endanger sovereign debt restructurings. Legal instruments to avoid this are briefly explored. An example of another key role of the law in crisis that is the task to resolve the tension between market discipline and financial stability is exemplified by the regulation of the OTC derivatives market and proposals of effective loss-sharing among CCPs. Related questions about the significance of legal rules to ensure financial stability are raised in the analysis of minimum capital requirements under Basel III.
Using two datasets containing demographically representative samples of the Dutch population, I study how lifetime experiences of aggregate labor market conditions affect personality. Three sets of findings are reported. First, experienced aggregate unemployment is negatively correlated with the levels of all Big Five personality traits, except for conscientiousness (no significant correlation). Second, in panel data models with individual fixed effects I find that changes in experienced aggregate unemployment cause changes in emotional stability and agreeableness for men, and conscientiousness for women. The correlation is positive, and effects are economically large. Thirdly, I report suggestive evidence that the main driver is experienced aggregate unemployment, instead of other macroeconomic variables as experienced GDP, stock market returns or inflation. Taken together, these findings suggest that changes in Big Five personality traits are systematically related to experienced aggregate labor market conditions.
The global financial crisis and the ensuing criticism of macroeconomics have inspired researchers to explore new modeling approaches. There are many new models that deliver improved estimates of the transmission of macroeconomic policies and aim to better integrate the financial sector in business cycle analysis. Policy making institutions need to compare available models of policy transmission and evaluate the impact and interaction of policy instruments in order to design effective policy strategies. This paper reviews the literature on model comparison and presents a new approach for comparative analysis. Its computational implementation enables individual researchers to conduct systematic model comparisons and policy evaluations easily and at low cost. This approach also contributes to improving reproducibility of computational research in macroeconomic modeling. Several applications serve to illustrate the usefulness of model comparison and the new tools in the area of monetary and fiscal policy. They include an analysis of the impact of parameter shifts on the effects of fiscal policy, a comparison of monetary policy transmission across model generations and a cross-country comparison of the impact of changes in central bank rates in the United States and the euro area. Furthermore, the paper includes a large-scale comparison of the dynamics and policy implications of different macro-financial models. The models considered account for financial accelerator effects in investment financing, credit and house price booms and a role for bank capital. A final exercise illustrates how these models can be used to assess the benefits of leaning against credit growth in monetary policy.
Correlated activity of cortical neurons survives extensive removal of feedforward sensory input
(2016)
A fundamental property of brain function is that the spiking activity of cortical neurons is variable and that some of this variability is correlated between neurons. Correlated activity not due to the stimulus arises from shared input but the neuronal circuit mechanisms that result in these noise correlations are not fully understood. Here we tested in the visual system if correlated variability in mid-level area V4 of visual cortex is altered following extensive lesions of primary visual cortex (V1). To this end we recorded longitudinally the neuronal correlations in area V4 of two behaving macaque monkeys before and after a V1 lesion while the monkeys fixated a grey screen. We found that the correlations of neuronal activity survived the lesions in both monkeys. In one monkey, the correlation of multi-unit spiking signals was strongly increased in the first week post-lesion, while in the second monkey, correlated activity was slightly increased, but not greater than some week-by-week fluctuations observed. The typical drop-off of inter-neuronal correlations with cortical distance was preserved after the lesion. Therefore, as V4 noise correlations remain without feedforward input from V1, these results suggest instead that local and/or feedback input seem to be necessary for correlated activity.