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(2023)
We analyze the effects of the PEPP (Pandemic Emergency Purchase Programme), the temporary quantitative easing implemented by the ECB immediately after the burst of the Covid-19 pandemic. We show that the differences in aim, size and flexibility with respect to the traditional Corporate Sector Purchase Programme (CSPP) were able to significantly involve, in addition to the directly targeted bonds, also the green bond segment. Via a standard difference- in-differences model we estimate that the yield on green bonds declined by more than 20 basis points after the PEPP. In order to take into account also the differences attributable to the eligibility to the programme, we employ a triple difference estimator. Bonds that at the same time were green and eligible benefitted of an additional premium of 39 basis points.
Digital platforms have become an important part of the digital economy by facilitating transactions between large numbers of users and by fostering innovation on collaborative platforms. In combination with technical platform services, some platform operators have managed to create powerful ecosystems that create network externalities and benefit from economies of scale and economies of scope. It is striking that, due to the specific economic drivers of the digital infrastructure, platform-based or platform-related services are dominated by a select number of global players. Most of the global platform operators are headquartered in the US, including Alphabet, Amazon, Apple, Meta and Microsoft, also known as the “Big 5”. Some are located in Asia (e.g. Alibaba, Tencent). In Europe there are only a limited number of platform operators with a small market share.
Much research has been conducted on the emergence and characteristics of platforms, network externalities and platform competition. However, there has been very little research on whether or not one can idķentify common features that might explain the success of Big Tech. The following article focuses on an analysis of the Big 5 based on their strategies and development paths. The comparison reveals certain commonalities, from which several conclusions can be drawn regarding the success factors of the Big 5. These insights could be helpful for business decision-makers when shaping digital strategies. But also policy makers, especially in Europe, could benefit from these lessons learned to improve the European technology ecosystem.
I have assessed changes in the monetary policy stance in the euro area since its inception by applying a Bayesian time-varying parameter framework in conjunction with the Hamiltonian Monte Carlo algorithm. I find that the estimated policy response has varied considerably over time. Most of the results suggest that the response weakened after the onset of the financial crisis and while quantitative measures were still in place, although there are also indications that the weakening of the response to the expected inflation gap may have been less pronounced. I also find that the policy response has become more forceful over the course of the recent sharp rise in inflation. Furthermore, it is essential to model the stochastic volatility relating to deviations from the policy rule as it materially influences the results.
This paper presents and compares Bernoulli iterative approaches for solving linear DSGE models. The methods are compared using nearly 100 different models from the Macroeconomic Model Data Base (MMB) and different parameterizations of the monetary policy rule in the medium-scale New Keynesian model of Smets and Wouters (2007) iteratively. I find that Bernoulli methods compare favorably in solving DSGE models to the QZ, providing similar accuracy as measured by the forward error of the solution at a comparable computation burden. The method can guarantee convergence to a particular, e.g., unique stable, solution and can be combined with other iterative methods, such as the Newton method, lending themselves especially to refining solutions.
Fabo, Janˇcokov ́a, Kempf, and P ́astor (2021) show that papers written by central bank researchers find quantitative easing (QE) to be more effective than papers written by academics. Weale and Wieladek (2022) show that a subset of these results lose statistical significance when OLS regressions are replaced by regressions that downweight outliers. We examine those outliers and find no reason to downweight them. Most of them represent estimates from influential central bank papers published in respectable academic journals. For example, among the five papers finding the largest peak effect of QE on output, all five are published in high-quality journals (Journal of Monetary Economics, Journal of Money, Credit and Banking, and Applied Economics Letters), and their average number of citations is well over 200. Moreover, we show that these papers have supported policy communication by the world’s leading central banks and shaped the public perception of the effectiveness of QE. New evidence based on quantile regressions further supports the results in Fabo et al. (2021).
The SVB case is a wake-up call for Europe’s regulators as it demonstrates the destructive power of a bank-run: it undermines the role of loss absorbing capital, elbowing governments to bailout affected banks. Many types of bank management weaknesses, like excessive duration risk, may raise concerns of bank losses – but to serve as a run-trigger, there needs to be a large enough group of bank depositors that fails to be fully covered by a deposit insurance scheme. Latent run-risk is the root cause of inefficient liquidations, and we argue that a run on SVB assets could have been avoided altogether by a more thoughtful deposit insurance scheme, sharply distinguishing between loss absorbing capital (equity plus bail-in debt) and other liabilities which are deemed not to be bail-inable, namely demand deposits. These evidence-based insights have direct implications for Europe’s banking regulation, suggesting a minimum and a maximum for a banks’ loss absorption capacity.
Flows of funds run by banks or by firms that belong to the same financial group as a bank are less volatile and less sensitive to bad past performance. This enables bank-affiliated funds to better weather distress and to hold lower precautionary cash buffers in comparison with their unaffiliated peers. Banks provide liquidity support to distressed affiliated funds by buying shares of those funds that are experiencing large outflows. This, in turn, diminishes the severity of strategic complementarities in investors’ redemptions. Liquidity support and other benefits of bank affiliation are conditional on the financial health of the parent company. Distress in the banking system spills over to the mutual fund sector via ownership links. Our research high-lights substantial dependencies between the banking system and the asset management industry, and identifies an important channel via which financial stability risks depend on the organisational structure of the financial sector.
We contribute to the debate about the future of capital markets and corporate finance, which has ensued against the background of a significant boom in private markets and a corresponding decline in the number of firms and the amount of capital raised in public markets in the US and Europe.
Our research sheds light on the fluctuating significance of public and private markets for corporate finance over time, and challenges the conventional view of a linear progression from one market to the other. We argue instead that a more complex pattern of interaction between public and private markets emerges, after taking a long-term perspective and examining historical developments more closely.
We claim that there is a dynamic divide between these markets, and identify certain factors that determine the degree to which investors, capital, and companies gravitate more towards one market than the other. However, in response to the status quo, other factors will gain momentum and favor the respective other market, leading to a new (unstable) equilibrium. Hence, we observe the oscillating domains of public and private markets over time. While these oscillations imply ‘competition’ between these markets, we unravel the complementarities between them, which also militate against a secular trend towards one market. Finally, we examine the role of regulation in this dynamic divide as well as some policy implications arising from our findings.
Art-related non-fungible tokens (NFTs) took the digital art space by storm in 2021, generating massive amounts of volume and attracting a large number of users to a previously obscure part of blockchain technology. Still, very little is known about the attributes that influence the price of these digital assets. This paper attempts to evaluate the level of speculation associated with art NFTs, comprehend the characteristics that confer value on them and design a profitable trading strategy based on our findings. We analyze 860,067 art NFTs that have been deployed on the Ethereum blockchain and have been involved in 317,950 sales using machine learning methods to forecast the probability of sale, the trade frequency and the average price. We find that NFTs are highly speculative assets and that their price and recurrence of sale are heavily determined by the floor and the last sale prices, independent of any fundamental value.
The discount control mechanisms that closed-end funds often choose to adopt before IPO are supposedly implemented to narrow the difference between share price and net asset value. We find evidence that non-discretionary discount control mechanisms such as mandatory continuation votes serve as costly signals of information to reveal higher fund quality to investors. Rents of the skill signaled through the announcement of such policies accrue to managers rather than investors as differences in skill are revealed through growing assets under management rather than risk- adjusted performance.
We analyze the performance of marketplace lending using loan cash flow data from the largest platform, Lending Club. We find substantial risk-adjusted performance of about 40 basis points per month for the entire loan portfolio. Other loan portfolios grouped by risk category have similar risk-adjusted performance. We show that characteristics of the local bank sector for each loan, such as concentration of deposits and the presence of national banks, are related to the performance of loans. Thus, marketplace lending has the potential to finance a growing share of the consumer credit market in the absence of a competitive response from the traditional incumbents.
Armstrong et al. (2022) review the empirical methods used in the accounting literature to draw causal inferences. They document a growing number of studies using quasi-experimental methods and provide a critical perspective on this trend as well as the use of these methods in the accounting literature. In this discussion, I complement their review by broadening the perspective. I argue for a design-based approach to accounting research that shifts attention from methods to the entire research design. I also discuss why studies that aim to draw causal inferences are important, how these studies fit into the scientific process, and why assessing the strength of the research design is important when evaluating studies and aggregating research findings.
Financial ties between drug companies and medical researchers are thought to bias results published in medical journals. To enable readers to account for such bias, most medical journals require authors to disclose potential conflicts of interest. For such policies to be effective, conflict disclosure must modify readers’ beliefs. We therefore examine whether disclosure of financial ties with industry reduces article citations, indicating a discount. A challenge to estimating this effect is selection as drug companies may seek out higher quality authors as consultants or fund their studies, generating a positive correlation between disclosed conflicts and citations. Our analysis confirms this positive association. Including observable controls for article and author quality attenuates but does not eliminate this relation. To tease out whether other researchers discount articles with conflicts, we perform three tests. First, we show that the positive association is weaker for review articles, which are more susceptible to bias. Second, we examine article recommendations to family physicians by medical experts, who choose from articles that are a priori more homogenous in quality. Here, we find a significantly negative association between disclosure and expert recommendations, consistent with discounting. Third, we conduct an analysis within author and article, exploiting journal policy changes that result in conflict disclosure by an author. We examine the effect of this disclosure on citations to a previously published article by the same author. This analysis reveals a negative citation effect. Overall, we find evidence that disclosures negatively affect citations, consistent with the notion that other researchers discount articles with disclosed conflicts.
Speculative news on corporate takeovers may hurt productivity because uncertainty and threat of job loss cause anxiety, distraction, and reduced collaboration and morale among employees and managers. Using a panel of OECD-headquartered firms, we show that firm productivity temporarily declines upon announcements of speculative takeover rumors that do not materialize. This productivity dip is more pronounced for targets and for firms in countries with weaker employee rights and less long-term orientation. Abnormal stock returns mirror these results. The evidence fosters our understanding of potential real effects of speculative financial news and the costs of takeover threats.
This paper examines the performance of 538 sovereign wealth fund (SWF) investments into venture capital, private equity, and real asset funds (“alternative asset funds”) from 52 countries around the world over the years 1995-2020. The data indicate SWFs are significantly slower to fully liquidate and earn lower returns from their investments, particularly from their investments in venture capital funds. The longer duration and lower performance of SWFs is more pronounced for strategic SWFs than savings SWFs. We show that venture capital fund investments are more likely to be in countries with lower quality disclosure indices. SWFs are more often in buyout funds, and in larger funds with a greater number of limited partners. SWF performance is enhanced by having different types of institutional investors in the same limited partnership. Overall, the data indicate sovereign wealth funds make large investments in alternative asset funds with a longer-term view and earn a lower financial return consistent with strategic and political SWF investment motives.
This paper examines the causes and consequences of hedge fund investments in exchange traded funds (ETFs) using U.S. data from 1998 to 2018. The data indicate that transient hedge funds and quasi-indexer hedge funds are substantially more likely to invest in ETFs. Unexpected hedge fund inflows cause a rise in ETF investments, and the economic significance of unexpected flow is more than twice as large for transient than quasi-indexer hedge funds. ETF investment is in general associated with lower hedge fund performance. But when ETF investment is accompanied by an increase in total flow and unexpected flow, the negative impact of ETF holdings on performance is mitigated. The data are consistent with the view that hedge fund ETF investment unrelated to unexpected flow is an agency cost of delegated portfolio management.
This paper characterizes the stationary equilibrium of a continuous-time neoclassical production economy with capital accumulation in which households can insure against idiosyncratic income risk through long-term insurance contracts. Insurance companies operating in perfectly competitive markets can commit to future contractual obligations, whereas households cannot. For the case in which household labor productivity takes two values, one of which is zero, and where households have logutility we provide a complete analytical characterization of the optimal consumption insurance contract, the stationary consumption distribution and the equilibrium aggregate capital stock and interest rate. Under parameter restrictions, there is a unique stationary equilibrium with partial consumption insurance and a stationary consumption distribution that takes a truncated Pareto form. The unique equilibrium interest rate (capital stock) is strictly decreasing (increasing) in income risk. The paper provides an analytically tractable alternative to the standard incomplete markets general equilibrium model developed in Aiyagari (1994) by retaining its physical structure, but substituting the assumed incomplete asset markets structure with one in which limits to consumption insurance emerge endogenously, as in Krueger and Uhlig (2006).
We analyze efficient risk-sharing arrangements when the value from deviating is determined endogenously by another risk sharing arrangement. Coalitions form to insure against idiosyncratic income risk. Self-enforcing contracts for both the original coalition and any coalition formed (joined) after deviations rely on a belief in future cooperation which we term "trust". We treat the contracting conditions of original and deviation coalitions symmetrically and show that higher trust tightens incentive constraints since it facilitates the formation of deviating coalitions. As a consequence, although trust facilitates the initial formation of coalitions, the extent of risk sharing in successfully formed coalitions is declining in the extent of trust and efficient allocations might feature resource burning or utility burning: trust is indeed a double-edged sword.
Employing the art-collection records of Burton and Emily Hall Tremaine, we consider whether early-stage art investors can be understood as venture capitalists. Because the Tremaines bought artists’ work very close to an artwork’s creation, with 69% of works in our study purchased within one year of the year when they were made, their collecting practice can best be framed as venture-capital investment in art. The Tremaines also illustrate art collecting as social-impact investment, owing to their combined strategy of art sales and museum donations for which the collectors received a tax credit under US rules. Because the Tremaines’ museum donations took place at a time that U.S. marginal tax rates from 70% to 91%, the near “donation parity” with markets, creating a parallel to ESG investment in the management of multiple forms of value.
Venture capital (VC) funds backed by large multi-fund families tend to perform substantially better due to cross-fund cash flows (CFCFs), a liquidity support mechanism provided by matching distributions and capital calls within a VC fund family. The dynamics of this mechanism coincide with the sensitivity of different stage projects owing to market liquidity conditions. We find that the early-stage funds demand relatively more intra-family CFCFs than later-stage funds during liquidity stress periods. We show that the liquidity improvement based on the timing of CFCF allocation reflects how fund families arrange internal liquidity provision and explains a large part of their outperformance.