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The Shared Task on Source and Target Extraction from Political Speeches (STEPS) first ran in 2014 and is organized by the Interest Group on German Sentiment Analysis (IGGSA). This volume presents the proceedings of the workshop of the second iteration of the shared task. The workshop was held at KONVENS 2016 at Ruhr-University Bochum on September 22, 2016.
As in the first edition of the shared task the main focus of STEPS was on fine-grained sentiment analysis and offered a full task as well as two subtasks for the extraction Subjective Expressions and/or their respective Sources and Targets.
In order to make the task more accessible, the annotation schema was revised for this year’s edition and an adjudicated gold standard was used for the evaluation. In contrast to the pilot task, this iteration provided training data for the participants, opening the Shared Task for systems based on machine learning approaches.
The gold standard1 as well as the evaluation tool2 have been made publicly available to the research community via the STEPS’ website.
We would like to thank the GSCL for their financial support in annotating the 2014 test data, which were available as training data in this iteration. A special thanks also goes to Stephanie Köser for her support on preparing and carrying out the annotation of this year’s test data. Finally, we would like to thank all the participants for their contributions and discussions at the workshop.
NLP4CMC III : 3rd workshop on natural language processing for computer-mediated communication
(2016)
The present paper reports the first results of the compilation and annotation of a blog corpus for German. The main aim of the project is the representation of the blog discourse structure and relations between its elements (blog posts, comments) and participants (bloggers, commentators). The data included in the corpus were manually collected from the scientific blog portal SciLogs. The feature catalogue for the corpus annotation includes three types of information which is directly or indirectly provided in the blog or can be construed by means of statistical analysis or computational tools. At this point, only directly available information (e.g., title of the blog post, name of the blogger etc.) has been annotated. We believe, our blog corpus can be of interest for the general study of blog structure or related research questions as well as for the development of NLP methods and techniques (e.g. for authorship detection).
Does an increase in competition increase or decrease bank stability? I exploit how the state-specific process of interstate banking deregulation lowered barriers to entry into urban banking markets and find that greater competition significantly increases bank stability. This result is robust to the inclusion of additional fixed effects and other influences, such as merger and acquisitions or diversification. Moreover, I find that greater competition reduces banks' nonperforming loans and increases bank profitability. These findings suggest that competition increases stability as it improves bank profitability and asset quality.
Returns to experience for U.S. workers have changed over the post-war period. This paper argues that a simple model goes a long way towards replicating these changes. The model features three well-known ingredients: (i) an aggregate production function with constant skill-biased technical change; (ii) cohort qualities that vary with average years of schooling; and crucially (iii) time-invariant age-efficiency profiles. The model quantitatively accounts for changes in longitudinal and cross-sectional returns to experience, as well as the differential evolution of the college wage premium for young and old workers.
We reconsider the role for human capital in accounting for cross-country income differences. Our contribution is to bring to bear new data on the pre- and post- migration labor market experiences of immigrants to the U.S. Immigrants from poor countries experience wage gains that are only 40 percent of the GDP per worker gap, which implies that “country" accounts for 40 percent of income differences, while human capital accounts for 60 percent. Our approach handles selection by comparing the wage of the same individual in two different countries. We also provide evidence on and a correction for skill transfer.
We examine the impact of house prices on labour supply decisions using UK micro data. We combine household survey data with local level house price measures and controls for local labour demand. Our micro data also allows us to control for individual level income expectations. We find significant house price effects on labour supply, consistent with leisure being a normal good. Labour supply responses to house prices are concentrated among young married female owners and older owners. This finding suggests house prices affect the decisions of marginal workers in the economy. Our estimates imply house prices are economically important for the participation decisions for these workers.
We study money creation and destruction in today’s monetary architecture and examine the impact of monetary policy and capital regulation in a general equilibrium setting. There are two types of money created and destructed: bank deposits, when banks grant loans to firms or to other banks and central bank money, when the central bank grants loans to private banks. We show that equilibria yield the first-best level of money creation and lending when prices are flexible, regardless of the monetary policy or capital regulation. When prices are rigid, we identify the circumstances in which money creation is excessive or breaks down and the ones in which an adequate combination of monetary policy and capital regulation can restore efficiency.
The dramatic shift from traditional pension plans to participant-directed 401(k) plans has increased the decision-making responsibility of individual investors for their own retirement planning. With this shift comes increasing evidence that investors are making poor decisions in choosing how much to save for retirement and in selecting among their investment options. Studies question the value of efforts to improve these decisions through regulatory reforms or investor education.
This article posits that deficiencies in workplace retirement savings cannot be adequately addressed until the reasons for poor investment decisions are better understood. We report the results of an exploratory study that asked subjects to complete a simulated retirement investment task and collected information about their financial knowledge and preferences. The study enabled us to measure financial literacy and evaluate its relationship to retirement investment decision-making. In line with existing research, we found a strong relationship between financial literacy and successful retirement investing. Our results suggest, however, that the relevant understanding in this context is not about math so much as it is a basic knowledge of the relative costs and benefits of the major investment categories. Finally, we present results suggesting that financial literacy is separate from investment preferences — specifically, that tolerance for risk is a separate and highly predictive variable in estimating retirement planning success.
Our research suggests that individual employees are likely to lack the skills necessary to support the current regulatory model of participant-directed retirement investing. The structure and regulation of retirement plans ought to take this fact seriously. We explore the potential for investor education and professional advice, respectively, to overcome the limitations of individualized choice.
Directors have traditionally been elected by a plurality of the votes cast. This means that in uncontested elections, a candidate who receives even a single vote is elected. Proponents of “shareholder democracy” have advocated a shift to a majority voting rule in which a candidate must receive a majority of the votes cast to be elected. Over the past decade, they have been successful, and the shift to majority voting has been one of the most popular and successful governance reforms.
Yet critics are skeptical as to whether majority voting improves board accountability. Tellingly, directors of companies with majority voting rarely fail to receive majority approval – even more rarely than directors of companies with plurality voting. Even when such directors fail to receive majority approval, they are unlikely to be forced to leave the board. This poses a puzzle: why do firms switch to majority voting and what effect does the switch have, if any, on director behavior?
We empirically examine the adoption and impact of a majority voting rule using a sample of uncontested director elections from 2007 to 2013. We test and find partial support for four hypotheses that could explain why directors of majority voting firms so rarely fail to receive majority support: selection; deterrence/accountability; electioneering by firms; and restraint by shareholders.
Our results further suggest that the reasons for and effects of adopting majority voting may differ between early and later adopters. We find that early adopters of majority voting were more shareholder-responsive than other firms even before they adopted majority voting. These firms seem to have adopted majority voting voluntarily, and the adoption of majority voting has made little difference in their responsiveness to shareholders responsiveness going forward. By contrast, for late adopters, we find no evidence that they were more shareholder-responsive than other firms before they adopted majority voting, but strong evidence that they became more responsive after adopting majority voting.
Differences between early and late adopters can have important implications for understanding the spread of corporate governance reforms and evaluating their effects on firms. Reform advocates, rather than targeting the firms that, by their measures, are most in need of reform, instead seem to have targeted the firms that are already most responsive. They may then have used the widespread adoption of majority voting to create pressure on the nonadopting firms. Empirical studies of the effects of governance changes thus need to be sensitive to the possibility that early adopters and late adopters of reforms differ from each other and that the reforms may have different effects on these two groups of firms.
Event studies have become increasingly important in securities fraud litigation after the Supreme Court’s decision in Halliburton II. Litigants have used event study methodology, which empirically analyzes the relationship between the disclosure of corporate information and the issuer’s stock price, to provide evidence in the evaluation of key elements of federal securities fraud, including materiality, reliance, causation, and damages. As the use of event studies grows and they increasingly serve a gatekeeping function in determining whether litigation will proceed beyond a preliminary stage, it will be critical for courts to use them correctly.
This Article explores an array of considerations related to the use of event studies in securities fraud litigation. It starts by describing the basic function of the event study: to determine whether a highly unusual price movement has occurred and the traditional statistical approach to making that determination. The Article goes on to identify special features of securities fraud litigation that distinguish litigation from the scholarly context in which event studies were developed. The Article highlights the fact that the standard approach can lead to the wrong conclusion and describes the adjustments necessary to address the litigation context. We use the example of six dates in the Halliburton litigation to illustrate these points.
Finally, the Article highlights the limitations of event studies – what they can and cannot prove – and explains how those limitations relate to the legal issues for which they are introduced. These limitations bear upon important normative questions about the role event studies should play in securities fraud litigation.
Little evidence exists on the financing decisions of newly founded firms or on the financing dynamics of these firms over their life cycle. We aim to help filling this gap by investigating the financing dynamics of 2,456 French manufacturing firms founded between 2004 and 2006 through their legally required and reported financial statements. Because we observe significant heterogeneity in the financing decision in the firms' founding year, we focus on analyzing whether these differences widen, persist, or converge by using different convergence concepts. We identify a persistence-cum-convergence pattern. We find the existence of ß-convergence (implying that e.g. firms with lower initial levels of debt accumulate more debt over time) but not of σ-convergence (i.e. we observe an increase in the cross-sectional dispersion of the financing structure). We also show that the dynamics of financing matter for the growth path of the firms.
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.
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.
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.
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.
We examine the dynamics of assets under management (AUM) and management fees at the portfolio manager level in the closed-end fund industry. We find that managers capitalize on good past performance and favorable investor perception about future performance, as reflected in fund premiums, through AUM expansions and fee increases. However, the penalties for poor performance or unfavorable investor perception are either insignificant, or substantially mitigated by manager tenure. Long tenure is generally associated with poor performance and high discounts. Our findings suggest substantial managerial power in capturing CEF rents. We also document significant diseconomies of scale at the manager level.
This paper shows that long debt maturities eliminate equity holders’ incentives to reduce leverage when the firm performs poorly. By contrast, short debt maturities commit equity holders to such leverage reductions. However, shorter debt maturities also lead to higher transactions costs when maturing bonds must be refinanced. We show that this tradeoff between higher expected transactions costs against the commitment to reduce leverage when the firm is doing poorly motivates an optimal maturity structure of corporate debt. Since firms with high costs of financial distress benefit most from committing to leverage reductions, they have a stronger motive to issue short-term debt.
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.
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.
Most defined contribution pension plans pay benefits as lump sums, yet the US Treasury has recently encouraged firms to protect retirees from outliving their assets by converting a portion of their plan balances into longevity income annuities (LIA). These are deferred annuities which initiate payouts not later than age 85 and continue for life, and they provide an effective way to hedge systematic (individual) longevity risk for a relatively low price. Using a life cycle portfolio framework, we measure the welfare improvements from including LIAs in the menu of plan payout choices, accounting for mortality heterogeneity by education and sex. We find that introducing a longevity income annuity to the plan menu is attractive for most DC plan participants who optimally commit 8-15% of their plan balances at age 65 to a LIA that starts paying out at age 85. Optimal annuitization boosts welfare by 5-20% of average retirement plan accruals at age 66 (assuming average mortality rates), compared to not having access to the LIA. We also compare the optimal LIA allocation versus two default options that plan sponsors could implement. We conclude that an approach where a fixed fraction over a dollar threshold is invested in LIAs will be preferred by most to the status quo, while enhancing welfare for the majority of workers.
Systemic co-jumps
(2016)
The simultaneous occurrence of jumps in several stocks can be associated with major financial news, triggers short-term predictability in stock returns, is correlated with sudden spikes of the variance risk premium, and determines a persistent increase (decrease) of stock variances and correlations when they come along with bad (good) news. These systemic events and their implications can be easily overlooked by traditional univariate jump statistics applied to stock indices. They are instead revealed in a clearly cut way by using a novel test procedure applied to individual assets, which is particularly effective on high-volume stocks.
This paper addresses whether and to what extent econometric methods used in experimental studies can be adapted and applied to financial data to detect the best-fitting preference model. To address the research question, we implement a frequently used nonlinear probit model in the style of Hey and Orme (1994) and base our analysis on a simulation stud. In detail, we simulate trading sequences for a set of utility models and try to identify the underlying utility model and its parameterization used to generate these sequences by maximum likelihood. We find that for a very broad classification of utility models, this method provides acceptable outcomes. Yet, a closer look at the preference parameters reveals several caveats that come along with typical issues attached to financial data, and that some of these issues seems to drive our results. In particular, deviations are attributable to effects stemming from multicollinearity and coherent under-identification problems, where some of these detrimental effects can be captured up to a certain degree by adjusting the error term specification. Furthermore, additional uncertainty stemming from changing market parameter estimates affects the precision of our estimates for risk preferences and cannot be simply remedied by using a higher standard deviation of the error term or a different assumption regarding its stochastic process. Particularly, if the variance of the error term becomes large, we detect a tendency to identify SPT as utility model providing the best fit to simulated trading sequences. We also find that a frequent issue, namely serial correlation of the residuals, does not seem to be significant. However, we detected a tendency to prefer nesting models over nested utility models, which is particularly prevalent if RDU and EXPO utility models are estimated along with EUT and CRRA utility models.
Microeconomic modeling of investors behavior in financial markets and its results crucially depends on assumptions about the mathematical shape of the underlying preference functions as well as their parameterizations. With the purpose to shed some light on the question, which preferences towards risky financial outcomes prevail in stock markets, we adopted and applied a maximum likelihood approach from the field of experimental economics on a randomly selected dataset of 656 private investors of a large German discount brokerage firm. According to our analysis we find evidence that the majority of these clients follow trading pattern in accordance with Prospect Theory (Kahneman and Tversky (1979)). We also find that observable sociodemographic and personal characteristics such as gender or age don't seem to correlate with specific preference types. With respect to the overall impact of preferences on trading behavior, we find a moderate impact of preferences on trading decisions of individual investors. A classification of investors according to various utility types reveals that the strength of the impact of preferences on an investors' rading behavior is not connected to most personal characteristics, but seems to be related to round-trip length.
Shortcomings revealed by experimental and theoretical researchers such as Allais (1953), Rabin (2000) and Rabin and Thaler (2001) that put the classical expected utility paradigm von Neumann and Morgenstern (1947) into question, led to the proposition of alternative and generalized utility functions, that intend to improve descriptive accuracy. The perhaps best known among those alternative preference theories, that has attracted much popularity among economists, is the so called Prospect Theory by Kahneman and Tversky (1979) and Tversky and Kahneman (1992). Its distinctive features, governed by its set of risk parameters such as risk sensitivity, loss aversion and decision weights, stimulated a series of economic and financial models that build on the previously estimated parameter values by Tversky and Kahneman (1992) to analyze and explain various empirical phenomena for which expected utility doesn't seem to offer a satisfying rationale. In this paper, after providing a brief overview of the relevant literature, we take a closer look at one of those papers, the trading model of Vlcek and Hens (2011) and analyze its implications on Prospect Theory parameters using an adopted maximum likelihood approach for a dataset of 656 individual investors from a large German discount brokerage firm. We find evidence that investors in our dataset are moderately averse to large losses and display high risk sensitivity, supporting the main assumptions of Prospect Theory.
Ongoing demographic change will lead to a relative scarcity of raw labor to the effect that output growth will be decreasing in the next decades, a secular stagnation. As physical capital will be relatively abundant, this decrease of output will be accompanied by reductions of asset returns. We quantify these effects for the US economy by developing an overlapping generations model with risky and risk-free assets. Without adjustments of human capital, risky returns decrease until 2035 by about 0.7 percentage point, and the risk-free rate by about one percentage point, leading to substantial welfare losses for asset rich households. Per capita output is reduced by 6%. Endogenous human capital adjustments strongly mitigate these effects. We conclude that human capital policies will be crucial in the context of labor shortages.
We study whether the presence of low-latency traders (including high-frequency traders (HFTs)) in the pre-opening period contributes to market quality, defined by price discovery and liquidity provision, in the opening auction. We use a unique dataset from the Tokyo Stock Exchange (TSE) based on server-IDs and find that HFTs dynamically alter their presence in different stocks and on different days. In spite of the lack of immediate execution, about one quarter of HFTs participate in the pre-opening period, and contribute significantly to market quality in the pre-opening period, the opening auction that ensues and the continuous trading period. Their contribution is largely different from that of the other HFTs during the continuous period.
The equity trading landscape all over the world has changed dramatically in recent years. We have witnessed the advent of new trading venues and significant changes in the market shares of existing ones. We use an extensive panel dataset from the European equity markets to analyze the market shares of five categories of lit and dark trading mechanisms. Market design features, such as minimum tick size, immediacy and anonymity; market conditions, such as liquidity and volatility; and the informational environment have distinct implications for order routing decisions and trading venues' resulting market shares. Furthermore, these implications differ distinctly for small and large trades, probably because traders jointly optimize their trade size and venue choice. Our results both confirm and go beyond current theoretical predictions on trading in fragmented markets.
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.
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.
“Institutional Overburdening” to a large extent was a consequence of the “Great Moderation”. This term indicates that it was a period in which inflation had come down from rather high levels. Growth and employment were at least satisfying and variability of output had substantially declined. It was almost unavoidable that as a consequence expectations on future actions of central banks and their ability to control the economy reached an unprecedented peak which was hardly sustainable. Institutional overburdening has two dimensions. One is coming from exaggerated expectations on what central banks can achieve (“expectational overburdening”). The other dimension is “operational overburdening” i.e. overloading the central bank with more and more responsibilities and competences.
This note discusses the basic economics of central clearing for derivatives and the need for a proper regulation, supervision and resolution of central counterparty clearing houses (CCPs). New regulation in the U.S. and in Europe renders the involvement of a central counterparty mandatory for standardized OTC derivatives’ trading and sets higher capital and collateral requirements for non-centrally cleared derivatives.
From a macrofinance perspective, CCPs provide a trade-off between reduced contagion risk in the financial industry and the creation of a significant systemic risk. However, so far, regulation and supervision of CCPs is very fragmented, limited and ignores two important aspects: the risk of consolidation of CCPs on the one side and the competition among CCPs on the other side. i) As the economies of scale of CCP operations in risk and cost reduction can be large, they provide an argument in favor of consolidation, leading at the extreme to a monopoly CCP that poses the ultimate default risk – a systemic risk for the entire financial sector. As a systemic risk event requires a government bailout, there is a public policy issue here. ii) As long as no monopoly CCP exists, there is competition for market share among existing CCPs. Such competition may undermine the stability of the entire financial system because it induces “predatory margining”: a reduction of margin requirements to increase market share.
The policy lesson from our consideration emphasizes the importance of a single authority supervising all competing CCPs as well as of a specific regulation and resolution framework for CCPs. Our general recommendations can be applied to the current situation in Europe, and the proposed merger between Deutsche Börse and London Stock Exchange.
Die aktuelle Diskussion über eine Reform der gesetzlichen Rentenversicherung vermischt Fragen nach dem durchschnittlichen Rentenniveau mit Fragen der Umverteilung von Einkommen im Ruhestand zur Bekämpfung einer etwaigen Altersarmut. Dieser Beitrag kritisiert diesen Ansatz und befasst sich mit fünf Kernaussagen: (1) Die aktuell gültige Rentenformel darf unter keinen Umständen abgeschafft werden. (2) Das Renteneintrittsalter sollte an die durchschnittliche Restlebenserwartung nach dem Erreichen des 65. Lebensjahres gekoppelt werden. (3) Eine Integration der Flüchtlinge in den Arbeitsmarkt wird das Rentenniveau in den Jahren 2030 bis 2040 stützen. (4) Sollte trotz allem die Altersarmut steigen, so kann dem durch die Einführung einer Mindestrente begegnet werden. (5) Die private Altersvorsorge muss weiter gestützt werden.
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.
The recent financial crisis has demonstrated that a failure of Systemically Important Financial Institutions (SIFIs) could seriously damage the stability of the financial system. A precise and consistent definition of a SIFI is pivotal to ensure efficient and effective regulation of the global financial sector. This paper proposes a threefold test logic that allows to classify Financial Institutions as systemically important across the various industry segments.
We provide a comprehensive analysis of the determinants of trading in the sovereign credit default swaps (CDS) market, using weekly data for single-name sovereign CDS from October 2008 to September 2015. We describe the anatomy of the sovereign CDS market, derive a law of motion for gross positions and their components, and identify the key factors that drive the cross-sectional and time-series properties of trading volume and net notional amounts outstanding. While a single principal component accounts for 54 percent of the variation in sovereign CDS spreads, the largest common factor explains only 7 percent of the variation in sovereign CDS net notional amounts outstanding. Moreover, unlike for CDS spreads, common global factors explain very little of the variation in sovereign CDS trading and net notional amounts outstanding, suggesting that it is driven primarily by idiosyncratic country risk. We analyze several local and regional channels that may explain the trading in sovereign CDS: (a) country-specific credit risk shocks, including changes in a country's credit rating and related outlook changes, (b) the announcement and issuance of domestic and international debt, (c) macroeconomic sentiment derived from conventional and unconventional monetary policy, macro-economic news and shocks, and (d) regulatory channels, such as changes in bank capital adequacy requirements. All our findings suggest that sovereign CDS are more likely used for hedging than for speculative purposes.
Using novel monthly data for 226 euro-area banks from 2007 to 2015, we investigate the determinants of changes in banks’ sovereign exposures and their effects during and after the crisis. First, public, bailed out and poorly capitalized banks responded to sovereign stress by purchasing domestic public debt more than other banks, with public banks’ purchases growing especially in coincidence with the largest ECB liquidity injections. Second, bank exposures significantly amplified the transmission of risk from the sovereign and its impact on lending. This amplification of the impact on lending does not appear to arise from spurious correlation or reverse causality.
The euro crisis was fueled by the diabolic loop between sovereign risk and bank risk, coupled with cross-border flight-to-safety capital flows. European Safe Bonds (ESBies), a union-wide safe asset without joint liability, would help to resolve these problems. We make three contributions. First, numerical simulations show that ESBies would be at least as safe as German bunds and approximately double the supply of euro safe assets when protected by a 30%-thick junior tranche. Second, a model shows how, when and why the two features of ESBies — diversification and seniority — can weaken the diabolic loop and its diffusion across countries. Third, we propose a step-by-step guide on how to create ESBies, starting with limited issuance by public or private-sector entities.
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.
Based on a unique data set of driving behavior we find direct evidence that private information has significant effects on contract choice and risk in automobile insurance. The number of car rides and the relative distance driven on weekends are significant risk factors. While the number of car rides and average speeding are negatively related to the level of liability coverage, the number of car rides and the relative distance driven at night are positively related to the level of first-party coverage. These results indicate multiple and counteracting effects of private information based on risk preferences and driving behavior.
Prestige and loan pricing
(2016)
We find that prestigious companies pay lower spreads and upfront fees on their loans despite the fact that prestige does not predict default risk over the life of the loan. Using survey data on firm-level prestige, we show that a one standard deviation increase in prestige reduces loan spreads by 6.18% per year and upfront fees by 22.86%. We identify causal effects (i) using fraud by industry peers as an instrument for borrower prestige and (ii) exploiting a regression discontinuity around rank 100 of the prestige survey. Banks that lend to prestigious firms attract more business afterwards compared to otherwise similar institutions. Moreover, the effect of prestige on upfront fees is particularly strong for new bank relationships. Our findings suggest that prestigious firms receive cheaper funding because the associated lending relationship helps banks establish valuable credentials they use to compete for future borrowers.
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.
This paper uses recent legislation in Austria to establish a link between sovereign reputation and yield spreads. In 2009, Hypo Alpe Adria International, a bank previously co-owned by the regional government of Carinthia, had been nationalized by Austria’s central government in order to avoid a default triggering multi-billion Euro local government guarantees. In 2015, special legislation retroactively introduced collective action clauses allowing a haircut on both the bonds and the guarantees while avoiding formal default. We document that legislative and administrative action designed to partly abrogate the guarantees resulted in a loss of reputation, leading to higher yield spreads for sovereign debt. Our analysis of covered bonds uncovers an increase in yield spreads on the secondary market and a deterioration of primary market conditions.
Studies employing micro price data to examine the extent of international goods market integration tend to find that borders induce arbitrage-impeding transaction costs which contribute to segment national markets. Analyzing household scanner price data from the three euro area countries Belgium, Germany and Netherlands, we document that Belgian households living in the vicinity of the border to Netherlands pay almost 10% more for the same good as their Dutch counterparts. German consumers on the other hand face prices that are on average up to around 3% smaller than those in the neighboring Netherlands. Counterfactual evidence for within-country price discontinuities provides no evidence of any existing border effects. The induced costs of crossing national borders amount to at least 13%. We also find evidence on border discontinuities in various household preference characteristics (such as demand elasticities and goods valuation) and household shopping patterns such as shopping frequencies.
Studies employing micro price data suggest that price dispersion is larger between regions in different countries than between regions in the same country. To investigate the strength of this border effect, deviations from the law of one price are used in most studies to provide statistical evidence on the effect of borders on price dispersion. I propose an alternative measure of the economic costs of borders which has an explicit welfare-theoretic foundation. Employing a unique micro price data set from households in Belgium, Germany and the Netherlands I provide evidence on the economic importance of price differences for households. I find that price dispersion within countries has only small economic importance, but that price dispersion between Belgium and Germany (and Belgium and the Netherlands) has considerable economic importance.
Microeconometric evidence on demand-side real rigidity and
implications for monetary non-neutrality
(2016)
To model the observed slow response of aggregate real variables to nominal shocks, most macroeconomic models incorporate real rigidities in addition to nominal rigidities. One popular way of modelling such a real rigidity is to assume a non-constant demand elasticity. By using a homescan data set for three European countries, including prices and quantities bought for a large number of goods, in addition to consumer characteristics, we provide estimates of price elasticities of demand and on the degree of demand-side real rigidities. We find that price elasticites of demand are about 4 in the median. Furthermore, we find evidence for demand-side real rigidities. These are, however, much smaller than what is often assumed in macroeconomic models. The median estimate for demand-side real rigidity, the super-elasticity, is in a range between 1 and 2. To quantitatively assess the implications of our empirical estimates, we calibrate a menu-cost model with the estimated super-elasticity. We find that the degree of monetary non-neutrality doubles in the model including demand-side real rigidity, compared to the model with only nominal rigidity, suggesting a multiplier effect of around two. However, the model can explain only up to 6% of the monetary non-neutrality observed in the data, implying that additional multipliers are necessary to match the behavior of aggregate variables.
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.
Das Kapitalmarktrecht entwickelt sich in der Berliner Republik zu einem voll integrierten Kernbestandteil des unternehmensrechtlichen Diskurses in der Rechtswissenschaft, während es in den vorausgehenden Dekaden primär eine in den normativen Grundlagen wenig durchdrungene Praktikermaterie darstellte. Das vorliegende Essay versucht eine Erklärung für diese Beobachtung zu skizzieren, die auf einem breiten Jurisdiktionen und Nationalökonomien übergreifenden Kontext beruht, der mit den Schlagworten Europäisierung und Globalisierung nur platt und unscharf umschrieben ist. Dabei geht es einerseits um eine Ausweichbewegung deutscher Unternehmen, die mit einer verstärkten Kapitalmarktorientierung eine Klemme in der Unternehmensfinanzierung zu lösen, die durch den Rückzug der vom globalen Wettbewerb erfassten Finanzindustrie aus derselben ausgelöst wurde. Auf der anderen Seite findet in der Altersvorsoge eine Abkehr von Umverteilungssystemen und eine Hinwendung zur kapitalbasierten Vorsorge statt, durch die nicht nur mehr Kapital für Investitionen statt für Konsum zur Verfügung steht, sondern auch die Interessen der Mittelschicht in vielerlei Hinsicht stärker von einer anlegerorientierten Regelung im Gesellschafts- und Kapitalmarktrecht abhängen, als von einer Arbeitnehmerorientierung im Unternehmensrecht.