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Common ownership and the (non-)transparency of institutional shareholdings: an EU-US comparison
(2022)
This paper compares the extent of common ownership in the US and the EU stock markets, with a particular focus on differences in the ap- plicable ownership transparency requirements. Most empirical research on common ownership to date has focused on US issuers, largely relying on ownership data obtained from institutional investors’ 13F filings. This type of data is generally not available for EU issuers. Absent 13F filings, researchers have to use ownership records sourced from mutual funds’ periodic reports and blockholder disclosures. Constructing a “reduced dataset” that seeks to capture only ownership information available for both EU and US issuers, I demonstrate that the “extra” ownership information introduced by 13F filings is substantial. However, even when taking differences in the transparency situation into due account, common ownership among listed EU firms is much less pronounced than among listed US firms by any measure. This is true even if the analysis is limited to non-controlled firms.
The great financial crisis and the euro area crisis led to a substantial reform of financial safety nets across Europe and – critically – to the introduction of supranational elements. Specifically, a supranational supervisor was established for the euro area, with discrete arrangements for supervisory competences and tasks depending on the systemic relevance of supervised credit institutions. A resolution mechanism was created to allow the frictionless resolution of large financial institutions. This resolution mechanism has been now complemented with a funding instrument.
While much more progress has been achieved than most observers could imagine 12 years ago, the banking union remains unfinished with important gaps and deficiencies. The experience over the past years, especially in the area of crisis management and resolution, has provided impetus for reform discussions, as reflected most lately in the Eurogroup statement of 16 June 2022.
This Policy Insight looks primarily at the current and the desired state of the banking union project. The key underlying question, and the focus here, is the level of ambition and how it is matched with effective legal and regulatory tools. Specifically, two questions will structure the discussions:
What would be a reasonable definition and rationale for a ‘complete’ banking union? And what legal reforms would be required to achieve it?
Banking union is a case of a new remit of EU-level policy that so far has been established on the basis of long pre-existing treaty stipulations, namely, Article 127(6) TFEU (for banking supervision) and Article 114 TFEU (for crisis management and deposit insurance). Could its completion be similarly carried out through secondary law? Or would a more comprehensive overhaul of the legal architecture be required to ensure legal certainty and legitimacy?
This paper studies the interactions between corporate law and VC exits by acquisitions, an increasingly common source of VC-related litigation. We find that transactions by VC funds under liquidity pressure are characterized by (i) a substantially lower sale price; (ii) a greater probability of industry outsiders as acquirers; (iii) a positive abnormal return for acquirers. These features indicate the existence of fire sales, which satisfy VCs' liquidation preferences but hurt common shareholders, leaving board members with conflicting fiduciary duties and litigation risks. Exploiting an important court ruling that establishes the board’s fiduciary duties to common shareholders as a priority, we find that after the ruling maturing VCs become less likely to exit by fire sales and they distribute cash to their investors less timely. However, VCs experience more difficult fundraising ex-ante, highlighting the potential cost of a common-favoring regime. Overall the evidence has important implications for optimal fiduciary duty design in VC-backed start-ups.
Search costs for lenders when evaluating potential borrowers are driven by the quality of the underwriting model and by access to data. Both have undergone radical change over the last years, due to the advent of big data and machine learning. For some, this holds the promise of inclusion and better access to finance. Invisible prime applicants perform better under AI than under traditional metrics. Broader data and more refined models help to detect them without triggering prohibitive costs. However, not all applicants profit to the same extent. Historic training data shape algorithms, biases distort results, and data as well as model quality are not always assured. Against this background, an intense debate over algorithmic discrimination has developed. This paper takes a first step towards developing principles of fair lending in the age of AI. It submits that there are fundamental difficulties in fitting algorithmic discrimination into the traditional regime of anti-discrimination laws. Received doctrine with its focus on causation is in many cases ill-equipped to deal with algorithmic decision-making under both, disparate treatment, and disparate impact doctrine. The paper concludes with a suggestion to reorient the discussion and with the attempt to outline contours of fair lending law in the age of AI.
Search costs for lenders when evaluating potential borrowers are driven by the quality of the underwriting model and by access to data. Both have undergone radical change over the last years, due to the advent of big data and machine learning. For some, this holds the promise of inclusion and better access to finance. Invisible prime applicants perform better under AI than under traditional metrics. Broader data and more refined models help to detect them without triggering prohibitive costs. However, not all applicants profit to the same extent. Historic training data shape algorithms, biases distort results, and data as well as model quality are not always assured. Against this background, an intense debate over algorithmic discrimination has developed. This paper takes a first step towards developing principles of fair lending in the age of AI. It submits that there are fundamental difficulties in fitting algorithmic discrimination into the traditional regime of anti-discrimination laws. Received doctrine with its focus on causation is in many cases ill-equipped to deal with algorithmic decision-making under both, disparate treatment, and disparate impact doctrine. The paper concludes with a suggestion to reorient the discussion and with the attempt to outline contours of fair lending law in the age of AI.
Large companies are increasingly on trial. Over the last decade, many of the world’s biggest firms have been embroiled in legal disputes over corruption charges, financial fraud, environmental damage, taxation issues or sanction violations, ending in convictions or settlements of record-breaking fines, well above the billion-dollar mark. For critics of globalization, this turn towards corporate accountability is a welcome sea-change showing that multinational companies are no longer above the law. For legal experts, the trend is noteworthy because of the extraterritorial dimensions of law enforcement, as companies are increasingly held accountable for activities independent of their nationality or the place of the activities. Indeed, the global trend required understanding the evolution of corporate criminal law enforcement in the United States in particular, where authorities have skillfully expanded its effective jurisdiction beyond its territory. This paper traces the evolution of corporate prosecutions in the United States. Analyzing federal prosecution data, it then shows that foreign firms are more likely to pay a fine, which is on average 6,6 times larger.
Energy efficiency represents one of the key planned actions aiming at reducing greenhouse emissions and the consumption of fossil fuel to mitigate the impact of climate change. In this paper, we investigate the relationship between energy efficiency and the borrower’s solvency risk in the Italian market. Specifically, we analyze a residential mortgage portfolio of four financial institutions which includes about 70,000 loans matched with the energy performance certificate of the associated buildings. Our findings show that there is a negative relationship between a building’s energy efficiency and the owner’s probability of default. Findings survive after we account for dwelling, household, mortgage, market control variables, and regional and year fixed effect. Additionally, a ROC analysis shows that there is an improvement in the estimation of the mortgage default probability when the energy efficiency characteristic is included as a risk predictor in the model.
In den letzten zwei Jahrzehnten sind Anmeldungen von Rechten des geistigen Eigentums (intellectual property, IP) bzw. Verletzungsklagen wiederholt an der unzureichenden Bestimmtheit des exklusiv beanspruchten Gegenstands gescheitert. Ihren Ausgang nahm diese Entwicklung im Markenrecht mit Entscheidungen des EuGH (Stichworte: Sieckmann, Heidelberger Bauchemie, Dyson, IP Translator, Oy Hartwall) und später auch des BGH (Stichwort: UHU). Die markenrechtlichen Grundsätze strahlten auf das Designrecht (Stichworte: Sporthelm, Mast-Jägermeister) und zuletzt auch auf das Urheberrecht (Stichwort: Levola) aus. Im Folgenden werden die maßgeblichen Urteile zur Schutzfähigkeit von Zeichen, Designs und Werken zusammengetragen und systematisiert. Dabei treten zwei Aspekte eines Bestimmtheitsgebots zu Tage, die, wie abschließend zu zeigen sein wird, auch im Patentrecht gelten
Der Beitrag bietet einen Überblick über den entstehungsgeschichtlichen Hintergrund sowie den Inhalt des ursprünglichen Netzwerkdurchsetzungsgesetzes (NetzDG) 2017, seine Wirkungen in der Praxis und die Änderungen durch die NetzDG-Reform 2021. Es wird gezeigt, dass aus einem Regelwerk mit engem Fokus auf die Durchsetzung des Strafrechts in OnlineNetzwerken ein Plattformregulierungsgesetz wurde, das sowohl Löschgebote (Strafrecht) als auch Löschverbote (Meinungsfreiheit) prozeduralisiert. Während das NetzDG 2017 keinen nennenswerten Niederschlag in gerichtlichen oder behördlichen Entscheidungen fand und inzwischen auch kaum noch eine Rolle in der Löschpraxis der Netzwerke spielt, dürfte es dazu beigetragen haben, dass die Netzwerkbetreiber ihre privaten Kommunikationsregeln verschärft haben. Hintergrund für diese „Flucht in die AGB“ ist, dass die großen Netzwerkbetreiber und der Gesetzgeber dasselbe Nahziel verfolgen: Einer Verrohung der Debattenkultur soll aus ökonomischen bzw. gesellschaftspolitischen Gründen entgegengewirkt werden. Der Beitrag schließt mit einem Ausblick auf den Digital Services Act (DSA), mit dem der Compliance-Ansatz des NetzDG europäisiert würde.
This policy note summarizes our assessment of financial sanctions against Russia. We see an increase in sanctions severity starting from (1) the widely discussed SWIFT exclusions, followed by (2) blocking of correspondent banking relationships with Russian banks, including the Central Bank, alongside secondary sanctions, and (3) a full blacklisting of the ‘real’ export-import flows underlying the financial transactions. We assess option (1) as being less impactful than often believed yet sending a strong signal of EU unity; option (2) as an effective way to isolate the Russian banking system, particularly if secondary sanctions are in place, to avoid workarounds. Option (3) represents possibly the most effective way to apply economic and financial pressure, interrupting trade relationships.
Der Koalitionsvertrag 2021 sieht eine generationengerechte Absicherung des Rentenniveaus durch eine teilweise aus Haushaltsmitteln finanzierte Kapitaldeckung vor. Um dieses Ziel zu verwirklichen, wird hier die Einführung einer Generationenrente ab Geburt vorgeschlagen. Dabei wird aus Haushaltsmitteln ein Betrag von € 5.000 für jedes Neugeborene nach Grundsätzen des professionellen Anlagemanagements am globalen Kapitalmarkt angelegt. Konzeptionell soll sich diese Generationenrente am Modell der Basisrente(§10 Abs. 1 Nr. 2 b EStG) orientieren, d.h. die akkumulierten Gelder sind weder beleihbar, vererbbar noch übertragbar und können frühestens ab Alter 63 zugunsten einer lebenslangen Monatsrente verwendet werden. Unsere Berechnungen zeigen, dass durch die hier vorgeschlagene Generationenrente unabhängig vom Verlauf der individuellen Erwerbsbiographie, Altersarmut für die vom demographischen Wandel besonders betroffenen zukünftigen Generationen vermieden wird.
Financial literacy affects wealth accumulation, and pension planning plays a key role in this relationship. In a large field experiment, we employ a digital pension aggregation tool to confront a treatment group with a simplified overview of their current pension claims across all pillars of the pension system. We combine survey and administrative bank data to measure the effects on actual saving behavior. Access to the tool decreases pension uncertainty for treated individuals. Average savings increase - especially for the financially less literate. We conclude that simplification of pension information can potentially reduce disparities in pension planning and savings behavior.
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.
Previous studies document a relationship between gambling activity at the aggregate level and investments in securities with lottery-like features. We combine data on individual gambling consumption with portfolio holdings and trading records to examine whether gambling and trading act as substitutes or complements. We find that gamblers are more likely than the average investor to hold lottery stocks, but significantly less likely than active traders who do not gamble. Our results suggest that gambling behavior across domains is less relevant compared to other portfolio characteristics that predict investing in high-risk and high-skew securities, and that gambling on and off the stock market act as substitutes to satisfy the same need, e.g., sensation seeking.
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.
We analyze how market fragmentation affects market quality of SME and other less actively traded stocks. Compared to large stocks, they are less likely to be traded on multiple venues and show, if at all, low levels of fragmentation. Concerning the impact of fragmentation on market quality, we find evidence for a hockey stick effect: Fragmentation has no effect for infrequently traded stocks, a negative effect on liquidity of slightly more active stocks, and increasing benefits for liquidity of large and actively traded stocks. Consequently, being traded on multiple venues is not necessarily harmful for SME stock market quality.
In the aftermath of the Wirecard scandal the German lead stock market index DAX has undergone a series of reforms, including the introduction of a profitability criterion based on EBITDA for new DAX members and enhanced financial reporting requirements with specified sanctions for non-compliance. Furthermore, DAX members need to adhere to certain provisions in the German Corporate Governance Code relating to audit committees. The final step of the reform was implemented in September 2021: the extension of the DAX from 30 to 40 constituents, with the ranking based solely on the free float market capitalisation. After one year of experience with the new design of the DAX, this paper concludes that the reform has strengthened the DAX in terms of diversification, quality and adaptability. However, there is still room for further improvement by introducing a minimum ESG score for DAX companies and thus making sustainability a relevant factor in the selection process. In addition, full compliance with the recommendations of the German Corporate Governance Code should be a condition for DAX companies. Furthermore, the profitability criterion should be applied on a continuous basis to ensure that loss-making companies can be excluded from the DAX after a grace period.
Im Januar 2020 änderte sich für viele Menschen die bis dahin gekannte Normalität durch das Aufkommen des Covid-19-Virus. Dies äußerte sich in einem gravierenden Einfluss auf die physische Mobilität und führte zu einer teilweisen Verlagerung in die virtuelle Mobilität. Angelehnt an die in dieser Arbeit dargestellten Forschungsansätze ist festzustellen, dass ein kausaler Zusammenhang zwischen eingeschränkter Mobilität und sozialer Exklusion von sozialer, politischer, ökonomischer sowie persönlicher Partizipation besteht. Diese Korrelation unter pandemischen Bedingungen wurde zum Zeitpunkt der Analyse kaum untersucht, weshalb es die Zielsetzung dieser Arbeit war, die Thematisierung der Einschränkungen mobilitätsbedingter sozialer Teilhabe durch die Covid-19-Pandemie im medialen Diskurs zu erörtern.
Die quantitative Analyse der drei Zeitungen Frankfurter Allgemeine Zeitung, Süddeutsche Zeitung und Die Zeit ergab, dass die mediale Auseinandersetzung mit dem Untersuchungsgegenstand nur einen marginalen Teil der Artikel prägt und damit eine Randnotiz der Gesellschaft darstellt. Die darauffolgende qualitative Inhaltsanalyse der thematisch passenden Zeitungsartikel lassen auf die Notwendigkeit einer Erweiterung der existierenden theoretischen Exklusionsdimensionen schließen. Grund dafür sind das Auftreten einer Infektionsangst sowie einer neuen Reichweite der Digitalisierung als grundlegende Exklusionsstrukturen während der Pandemie. Insbesondere in der Entscheidung um den Umgang mit dem ÖPNV spiegeln sich vielfältige gesellschaftliche Fragen um Sicherheit und Gesundheitsschutz, aber auch um soziale Teilhabe und Zugang.
The author proposes a Differential-Independence Mixture Ensemble (DIME) sampler for the Bayesian estimation of macroeconomic models.It allows sampling from particularly challenging, high-dimensional black-box posterior distributions which may also be computationally expensive to evaluate. DIME is a “Swiss Army knife”, combining the advantages of a broad class of gradient-free global multi-start optimizers with the properties of a Monte Carlo Markov chain (MCMC). This includes fast burn-in and convergence absent any prior numerical optimization or initial guesses, good performance for multimodal distributions, a large number of chains (the “ensemble”) running in parallel, an endogenous proposal density generated from the state of the full ensemble, which respects the bounds of the prior distribution. The author shows that the number of parallel chains scales well with the number of necessary ensemble iterations.
DIME is used to estimate the medium-scale heterogeneous agent New Keynesian (“HANK”) model with liquid and illiquid assets, thereby for the first time allowing to also include the households’ preference parameters. The results mildly point towards a less accentuated role of household heterogeneity for the empirical macroeconomic dynamics.
The authors propose a new method to forecast macroeconomic variables that combines two existing approaches to mixed-frequency data in DSGE models. The first existing approach estimates the DSGE model in a quarterly frequency and uses higher frequency auxiliary data only for forecasting. The second method transforms a quarterly state space into a monthly frequency. Their algorithm combines the advantages of these two existing approaches.They compare the new method with the existing methods using simulated data and real-world data. With simulated data, the new method outperforms all other methods, including forecasts from the standard quarterly model. With real world data, incorporating auxiliary variables as in their method substantially decreases forecasting errors for recessions, but casting the model in a monthly frequency delivers better forecasts in normal times.
For the academic audience, this paper presents the outcome of a well-identified, large change in the monetary policy rule from the lens of a standard New Keynesian model and asks whether the model properly captures the effects. For policymakers, it presents a cautionary tale of the dismal effects of ignoring basic macroeconomics. The Turkish monetary policy experiment of the past decade, stemming from a belief of the government that higher interest rates cause higher inflation, provides an unfortunately clean exogenous variance in the policy rule. The mandate to keep rates low, and the frequent policymaker turnover orchestrated by the government to enforce this, led to the Taylor principle not being satisfied and eventually a negative coeffcient on inflation in the policy rule. In such an environment, was the exchange rate still a random walk? Was inflation anchored? Does the “standard model”” suffice to explain the broad contours of macroeconomic outcomes in an emerging economy with large identifying variance in the policy rule? There are no surprises for students of open-economy macroeconomics; the answers are no, no, and yes.
In a parsimonious regime switching model, we find strong evidence that expected consumption growth varies over time. Adding inflation as a second variable, we uncover two states in which expected consumption growth is low, one with high and one with negative expected inflation. Embedded in a general equilibrium asset pricing model with learning, these dynamics replicate the observed time variation in stock return volatilities and stock- bond return correlations. They also provide an alternative derivation for a measure of time-varying disaster risk suggested by Wachter (2013), implying that both the disaster and the long-run risk paradigm can be extended towards explaining movements in the stock-bond correlation.
Are we in a new “Polanyian moment”? If we are, it is essential to examine how “spontaneous” and punctual expressions of discontent at the individual level may give rise to collective discourses driving social and political change. It is also important to examine whether and how the framing of these discourses may vary across political economies. This paper contributes to this endeavor with the analysis of anti-finance discourses on Twitter in France, Germany, Italy, Spain and the UK between 2019 and 2020. This paper presents three main findings. First, the analysis shows that, more than ten years after the financial crisis, finance is still a strong catalyzer of political discontent. Second, it shows that there are important variations in the dominant framing of public anti-finance discourses on social media across European political economies. If the antagonistic “us versus them” is prominent in all the cases, the identification of who “us” and “them” are, vary significantly. Third, it shows that the presence of far-right tropes in the critique of finance varies greatly from virtually inexistent to a solid minority of statements.
The lichenicolous fungus Sarcogyne bicolor H. Magn. was recovered as an Acarospora and is given the replacement name, Acarospora destructans. It is reported new from New Mexico. Two new species of Acarospora are described from New Mexico, Acarospora eganiana and A. worthingtoniana. A form or variety of A. glaucocarpa is treated as a species, Sarcogyne melaniza, an apparently rare taxa in Europe.
We study liquidity provision by competitive high-frequency trading firms (HFTs) in a dynamic trading model with private information. Liquidity providers face adverse selection risk from trading with privately informed investors and from trading with other HFTs that engage in latency arbitrage upon public information. The impact of the two different sources of risk depends on the details of the market design. We determine equilibrium transaction costs in continuous limit order book (CLOB) markets and under frequent batch auctions (FBA). In the absence of informed trading, FBA dominates CLOB just as in Budish et al. (2015). Surprisingly, this result does no longer hold with privately informed investors. We show that FBA allows liquidity providers to charge markups and earn profits – even under risk neutrality and perfect competition. A slight variation of the FBA design removes the inefficiency by allowing traders to submit orders conditional on auction excess demand.
In vielen Städten werden gemeinschaftlicher Wohnprojekte in unterschiedlicher Weise gefördert, weil sie dauerhaft bezahlbares und sicheres Wohnen ermöglichen sowie positiv ins Quartier wirken (sollen). Mitunter kommt dabei die Frage auf, wie ein solcher Mehrwert für das Gemeinwohl bestimmt und wie die Projekte seitens der fördernden Kommune begleitet werden können. Mit diesen Fragen hat sich das Forschungsprojekt 'Gemeinschaftliches Wohnen als kommunales städtebauliches Instrument. Monitoring, Vernetzung und Auswertung gemeinschaftlichen Wohnens in Frankfurt am Main (GeWokosl)' in explorativer Weise befasst. Ziel war es einen Monitoring-Ansatz vorzubereiten, mit dessen Hilfe die Quartiersangebote städtisch geförderter gemeinschaftlicher Wohnprojekten erfasst und unterstützt werden sollen. Dazu wurden Interviews mit zuständigen Verwaltungen in Hamburg, Tübingen, Leipzig und Stuttgart sowie Gruppendiskussion mit sechs gemeinschaftlichen Wohnprojekten in Frankfurt am Main geführt. Ein Monitoring der Wirkungen in das Quartier wird von allen Beteiligten als eine Herausforderung gesehen, da es eine Erfassung der qualitativen projektspezifischen Dynamiken erfordert. Insgesamt zeigen die Interviewergebnisse mit den Stadtverwaltungen ein Spannungsfeld zwischen dem Wunsch, einen die Wohnprojekte unterstützenden Ansatz zu entwickeln und dem Anspruch, die gemeinwohlorientierten Beiträge der Projekte zu kontrollieren und zu steuern. Die Projekte fordern in diesem Kontext eine zuverlässige finanzielle Unterstützung für ihr soziales Engagement und den Ausbau der städtischen sozialen Infrastruktur. Das Forschungsvorhaben wurde als Kooperation zwischen der Stabsstelle Wohnungsmarkt, Mietrecht und innovative Wohnprojekte des Amtes für Wohnungswesen Frankfurt am Main sowie der Professur von Bernd Belina am Institut für Humangeographie der Goethe-Universität im Zeitraum von Mai 2021 bis Februar 2022 durchgeführt.
Peer effects can lead to better financial outcomes or help propagate financial mistakes across social networks. Using unique data on peer relationships and portfolio composition, we show considerable overlap in investment portfolios when an investor recommends their brokerage to a peer. We argue that this is strong evidence of peer effects and show that peer effects lead to better portfolio quality. Peers become more likely to invest in funds when their recommenders also invest, improving portfolio diversification compared to the average investor and various placebo counterfactuals. Our evidence suggests that social networks can provide good advice in settings where individuals are personally connected.
Veronika Grimm, Lukas Nöh, and Volker Wieland assess the possible development of government interest expenditures as a share of GDP for Germany, France, Italy and Spain. Until 2021, these and other member states could anticipate a further reduction of interest expenditure in the future. This outlook has changed considerably with the recent surge in inflation and government bond rates. Nevertheless, under reasonable assumptions current yield curves still imply that interest expenditure relative to GDP can be stabilized at the current level. The authors also review the implications of a further upward shift in the yield curves of 1 or 2 percentage points. These implications suggest significant medium-term risks for highly indebted member states with interest expenditure approaching or exceeding levels last observed on the eve of the euro area debt crisis. In light of these risks, governments of euro area member states should take substantive action to achieve a sustained decline in debt-to-GDP ratios towards safer levels. They bear the responsibility for making sure that government finances can weather the higher interest rates which are required to achieve price stability in the euro area.
The financial sector plays an important role in financing the green transformation of the European economy. A critical assessment of the current regulatory framework for sustainable finance in Europe leads to ambiguous results. Although the level of transparency on ESG aspects of financial products has been significantly improved, it is questionable whether the complex, mainly disclosure-oriented architecture is sufficient to mobilise more private capital into sustainable investments. It should be discussed whether a minimum Taxonomy ratio or Green Asset Ratio has to be fulfilled to market a financial product as “green”. Furthermore, because of the high complexity of the regulation, it could be helpful for the understanding of private investors to establish a simplified green rating, based on the Taxonomy ratio, to facilitate the selection of green financial products.
Despite the impressive success of deep neural networks in many application areas, neural network models have so far not been widely adopted in the context of volatility forecasting. In this work, we aim to bridge the conceptual gap between established time series approaches, such as the Heterogeneous Autoregressive (HAR) model (Corsi, 2009), and state-of-the-art deep neural network models. The newly introduced HARNet is based on a hierarchy of dilated convolutional layers, which facilitates an exponential growth of the receptive field of the model in the number of model parameters. HARNets allow for an explicit initialization scheme such that before optimization, a HARNet yields identical predictions as the respective baseline HAR model. Particularly when considering the QLIKE error as a loss function, we find that this approach significantly stabilizes the optimization of HARNets. We evaluate the performance of HARNets with respect to three different stock market indexes. Based on this evaluation, we formulate clear guidelines for the optimization of HARNets and show that HARNets can substantially improve upon the forecasting accuracy of their respective HAR baseline models. In a qualitative analysis of the filter weights learnt by a HARNet, we report clear patterns regarding the predictive power of past information. Among information from the previous week, yesterday and the day before, yesterday's volatility makes by far the most contribution to today's realized volatility forecast. Moroever, within the previous month, the importance of single weeks diminishes almost linearly when moving further into the past.
We propose a new instrument for estimating the price elasticity of gasoline demand that exploits systematic differences across U.S. states in the pass-through of oil price shocks to retail gasoline prices. These differences, which are primarily driven by variation in the cost of producing and distributing gasoline, create cross-sectional dispersion in gasoline price growth in response to an aggregate oil price shock. We find that the elasticity was stable near -0.3 until the end of 2014, but subsequently rose to about -0.2. Our estimates inform the recent debate about gasoline-tax holidays and policies to reduce carbon emissions.
The authors study the impact of dissent in the ECB‘s Governing Council on uncertainty surrounding households‘ inflation expectations. They conduct a randomized controlled trial using the Bundesbank Online Panel Households. Participants are provided with alternative information treatments concerning the vote in the Council, e.g. unanimity and dissent, and are asked to submit probabilistic inflation expectations. The results show that the vote is informative.
Households revise their subjective inflation forecast after receiving information about the vote. Dissenting votes cause a wider individual distribution of future inflation. Hence, dissent increases households‘ uncertainty about inflation. This effect is statistically significant once the authors allow for the interaction between the treatments and individual characteristics of respondents.
The results are robust with respect to alternative measures of forecast uncertainty and hold for different model specifications. The findings suggest that providing information about dissenting votes without additional information about the nature of dissent is detrimental to coordinating household expectations.
We estimate the cost of cultural biases in high-stake economic decisions by comparing agents’ peer-to-peer lending choices with those the same agents make under the assistance of an automated robo-advisor. We first confirm substantial in-group vs. out-group and stereotypical discrimination, which are stronger for lenders who reside where historical cultural biases are higher. We then exploit our unique setting to document that cultural biases are costly: agents face 8% higher default rates on favored-group borrowers when unassisted. The returns they earn on favored groups increase by 7.3 percentage points when assisted. The high riskiness of the marginal borrowers from favorite groups largely explains the bad performance of culturally-biased choices. Because varying economic incentives do not reduce agents’ biases, inaccurate statistical discrimination—unconscious biased beliefs about borrowers’ quality—can explain our results better than taste-based discrimination.
he ECB is independent, but it is also accountable to the European parliament (EP). Yet, how the EP has held the ECB accountable has largely been overlooked. This paper starts addressing this gap by providing descriptive statistics of three accountability modalities. The paper highlights three findings. First, topics of accountability have changed. Climate-related accountability has increased quickly and dramatically since 2017. Second, if the relationship between price stability and climate change remains an object of conflict among MEPs, a majority within the EP has emerged to put pressure for the ECB to take a more active stance against climate change, precisely on behalf of its price stability mandate. Third, MEPs engage with the climate topic in very specific ways. There is a gender divide between the climate and the price stability topics. Women engage more actively with climate-related topics. While the Greens heavily dominate the climate topic, parties from the Right dominate the topic of Price stability. Finally, MEPs adopt a more united strategy and a particularly low confrontational tone in their climate-related interventions.
The authors study the effects of forward looking communication in an environment of rising inflation rates on German consumers‘ inflation expectations using a randomized control trial. They show that information about rising inflation increases short- and long-term inflation expectations. This initial increase in expectations can be mitigated using forward looking information about inflation. Among these information treatments, professional forecasters‘ projections seem to reduce inflation expectations by more than policymakers‘ characterization of inflation as a temporary phenomenon.
Many nations incentivize retirement saving by letting workers defer taxes on pension contributions, imposing them when retirees withdraw their funds. Using a dynamic life cycle model, we show how ‘Rothification’ – that is, taxing 401(k) contributions rather than payouts – alters saving, investment, consumption, and Social Security claiming patterns. We find that taxing pension contributions instead of withdrawals leads to delayed retirement, somewhat lower lifetime tax payments, and relatively small reductions in consumption. Indeed, the two tax regimes generate quite similar relative inequality metrics: the relative consumption inequality ratio under TEE is only four percent higher than in the EET case. Moreover, results indicate that the Gini measures are also strikingly similar under the EET and the TEE regimes for lifetime consumption, cash on hand, and 401(k) assets, differing by only 1-4 percent. While tax payments are higher early in life under the TEE regime, they are slightly lower in the long run. Moreover, higher EET tax payments are also accompanied by higher volatility. We therefore find few reasons for policymakers to favor either tax approach on egalitarian or revenue-enhancing grounds.
Der Beitrag bietet eine Übersicht der unionalen und deutschen Rechtsbegriffe zur Bezeichnung von Diensten im Bereich der Informations- und Kommunikationstechnik (IKT). Neben Rechtsquellen der ersten Regulierungsgeneration (insbes. E-Commerce- und InfoSoc-Richtlinie) werden 26 Gesetze bzw. Gesetzesvorschläge aus den letzten fünf Jahren in die Bestandsaufnahme einbezogen. Die einzelnen Dienstebegriffe werden erläutert und nach Maßgabe ihrer technisch-sozialen Funktion klassifiziert. Die vergleichende Analyse arbeitet Unterschiede und Überschneidungen sowie allgemeine dogmatische Grundsätze heraus, etwa zur Beurteilung multifunktionaler Dienste. Besonderes Augenmerk gilt Diensten wie sozialen Netzwerken und Messengern, deren juristische Einordnung ungeklärt ist. Der Beitrag schließt mit begrifflichen Reformvorschlägen für das künftige Digitalrecht.
Im Zuge der fortlaufenden Digitalisierung im Mobilitätssektor werden aktuell besonders in Großstädten verstärkt geteilte on-demand Fahrdienstleistungen implementiert. Das sog. Ridepooling beschreibt eine dynamische und digitale Form des konventionellen Sammeltaxis, bei welcher durch eine intelligente Algorithmik mehrere voneinander unabhängige, zeitlich korrespondierende Fahrtwünsche in Echtzeit zu einer Route kombiniert werden. So können einander unbekannte Kund*innen gemeinsam und gleichzeitig nach ihren individuellen Bedürfnissen auf Direktverbindungen befördert werden. Viele der Ridepooling-Angebote werden in urban geprägten Raumstrukturen von privaten Verkehrsunternehmen - teilweise sogar eigenwirtschaftlich - betrieben und als nachhaltige Mobilitätsform beworben: Sie soll die sich individualisierenden Mobilitätsbedürfnisse der Bürger*innen befriedigen, dadurch städtische Problematiken wie hohe Luft- und Lärmbelastung, Staubildung sowie Flächenknappheit adressieren und zu einer umweltfreundlichen Verlagerung des lokalen Verkehrsaufkommens (Modal Shift) führen.
Die vorliegende Arbeit untersucht am Beispiel der Großstädte Berlin und Hamburg, wie und unter welchen Zielsetzungen der unterschiedlichen Akteure die neuen Angebotsformen implementiert wurden und welche Auswirkungen sie auf die städtischen Mobilitätssysteme haben.
Durch Expert*innen-Interviews mit städtischen Behörden, öffentlichen und privaten Verkehrsunternehmen, Verkehrsverbünden und Expert*innen für digitale und städtische Mobilität soll der aktuell noch geringe Forschungsstand über die Zielsetzungen, Formen und Auswirkungen von Ridepooling-Angeboten in städtischen Räumen um praxisnahe Betrachtungen und Erkenntnisse erweitert werden. Es kann angenommen werden, dass die unterschiedlichen Ausgestaltungen der untersuchten Angebote von ioki, CleverShuttle, MOIA und BerlKönig dabei durchaus voneinander differierende Effekte auf das Nutzungsverhalten der Kund*innen und die städtische Verkehrsgestaltung sowie deren ökologischen und sozialen Nachhaltigkeitsdimensionen haben.
In the communication of the European Central Bank (ECB), the statement that „we act within our mandate“ is often referred to. Also among practitioners of the Eurosystem the term „mandate“ has become popular. In his Working Paper, Helmut Siekmann analyzes the legal foundation of the tasks and objectives of the Eurosysstem and price stability as a legal term. He finds that the primary law of the EU only very sparsely employs the term „mandate“. It is never used in the context of monetary policy and its institutions. Moreover, he comes to the conclusion that inflation targeting as a task, competence, or objective of the Eurosystem is legally highly questionable according to the common standards of interpretation.
This briefing paper describes and evaluates the law and economics of institution(al) protection schemes. Throughout our analysis, we use Europe’s largest such scheme, that of German savings banks, as paradigm. We find strengths and weaknesses: Strong network-internal monitoring and early warning seems to be an important contributor to IPS network success. Similarly, the geographical quasi-cartel encourages banks to build a strong client base, including SME, in all regions. Third, the growth of the IPS member institutions may have benefitted from the strictly unlimited protection offered, in terms of euro amounts per account holder. The counterweighing weaknesses encompass the conditionality of the protection pledge and the underinvestment risk it entails, sometimes referred to as blackmailing the government, as well as the limited diversification potential of the deposit insurance within the network, and the near-incompatibility of the IPS model with the provisions of the BRRD, particularly relating to bail-in and resolution. Consequently, we suggest, as policy guidance, to treat large IPS networks similar to large banking groups, and put them as such under the direct supervision of the ECB within the SSM. Moreover, we suggest strengthening the seriousness of a deposit insurance that offers unlimited protection. Finally, to improve financial stability, we suggest embedding the IPS model into a multi-tier deposit re-insurance scheme, with a national and a European layer. This document was provided by the Economic Governance Support Unit at the request of the ECON Committee.
The transition to a sustainable economy currently involves a fundamental transformation of our capital markets. Lawmakers, in an attempt to overcome this challenge, frequently seek to prescribe and regulate how firms may address environmental, social, and governance (ESG) concerns by formulating conduct standards. Deviating from this conceptual starting point, the present paper makes the case for another path towards achieving greater sustainability in capital markets, namely through the empowerment of investors.
This trust in the market itself is grounded in various recent developments both on the supply side and the demand side of financial markets, and also in the increasing tendency of institutional investors to engage in common ownership. The need to build coalitions among different types of asset managers or institutional investors, and to convince fellow investors of a given initiative, can then act as an in-built filter helping to overcome the pursuit of idiosyncratic motives and supporting only those campaigns that are seconded by a majority of investors. In particular, institutionalized investor platforms have emerged over recent years as a force for investor empowerment, serving to coordinate investor campaigns and to share the costs of engagement.
ESG engagement has the potential to become a very powerful driver towards a more sustainability-oriented future. Indeed, I show that investor-led sustainability has many advantages compared to a more prescriptive, regulatory approach where legislatures are in the driver’s seat. For example, a focus on investor-led priorities would follow a more flexible and dynamic pattern rather than complying with inflexible pre-defined criteria. Moreover, investor-promoted assessments are not likely to impair welfare creation in the same way as ill-defined legal standards; they will also not trigger regulatory arbitrage and would avoid deadlock situations in corporate decision-making. Any regulatory activity should then be limited to a facilitative and supportive role.
To ensure the credibility of market discipline induced by bail-in, neither retail investors nor peer banks should appear prominently among the investor base of banks’ loss absorbing capital. Empirical evidence on bank-level data provided by the German Federal Financial Supervisory Authority raises a few red flags. Our list of policy recommendations encompasses disclosure policy, data sharing among supervisors, information transparency on holdings of bail-inable debt for all stakeholders, threshold values, and a well-defined upper limit for any bail-in activity. This document was provided by the Economic Governance Support Unit at the request of the ECON Committee.
This study analyzes information production and trading behavior of banks with lending relationships. We combine trade-by-trade supervisory data and credit-registry data to examine banks' proprietary trading in borrower stocks around a large number of corporate events. We find that relationship banks build up positive (negative) trading positions in the two weeks before events with positive (negative) news, even when these events are unscheduled, and unwind positions shortly after the event. This trading pattern is more pronounced in situations when banks are likely to possess private information about their borrowers, and cannot be explained by specialized expertise in certain industries or certain firms. The results suggest that banks' lending relationships inform their trading and underscore the potential for conflicts of interest in universal banking, which have been a prominent concern in the regulatory debate for a long time. Our analysis illustrates how combining large data sets can uncover unusual trading patterns and enhance the supervision of financial institutions.
The loan impairment rules recently introduced by IFRS 9 require banks to estimate their future credit losses by using forward-looking information. We use supervisory loan-level data from Germany to investigate how banks apply their reporting discretion and adjust their lending upon the announcement of the new rules. Our identification strategy exploits a cut-off for the level of provisions at the investment grade threshold based on banks’ internal rating of a borrower. We find that banks required to adopt the new rules assign better internal ratings to exactly the same borrowers compared to banks that do not apply IFRS 9 around this cut-off. This pattern is consistent with a strategic use of the increased reporting discretion that is inherent to rules requiring forward-looking loss estimation. At the same time, banks also reduce their lending exposure to exactly those borrowers at the highest risk of experiencing a rating downgrade below the cutoff. These loans would be associated with additional provisions in future periods, both in the intensive and extensive margin. The lending change thus mitigates some of the negative effects of increased reporting opportunism on banks’ crisis resilience. However, when these firms with internal ratings around the investment grade cut-off obtain less external funding through banks, the introduction of IFRS 9 will likely also be associated with real economic effects
Linear rational-expectations models (LREMs) are conventionally "forwardly" estimated as follows. Structural coefficients are restricted by economic restrictions in terms of deep parameters. For given deep parameters, structural equations are solved for "rational-expectations solution" (RES) equations that determine endogenous variables. For given vector autoregressive (VAR) equations that determine exogenous variables, RES equations reduce to reduced-form VAR equations for endogenous variables with exogenous variables (VARX). The combined endogenous-VARX and exogenous-VAR equations comprise the reduced-form overall VAR (OVAR) equations of all variables in a LREM. The sequence of specified, solved, and combined equations defines a mapping from deep parameters to OVAR coefficients that is used to forwardly estimate a LREM in terms of deep parameters. Forwardly-estimated deep parameters determine forwardly-estimated RES equations that Lucas (1976) advocated for making policy predictions in his critique of policy predictions made with reduced-form equations.
Sims (1980) called economic identifying restrictions on deep parameters of forwardly-estimated LREMs "incredible", because he considered in-sample fits of forwardly-estimated OVAR equations inadequate and out-of-sample policy predictions of forwardly-estimated RES equations inaccurate. Sims (1980, 1986) instead advocated directly estimating OVAR equations restricted by statistical shrinkage restrictions and directly using the directly-estimated OVAR equations to make policy predictions. However, if assumed or predicted out-of-sample policy variables in directly-made policy predictions differ significantly from in-sample values, then, the out-of-sample policy predictions won't satisfy Lucas's critique.
If directly-estimated OVAR equations are reduced-form equations of underlying RES and LREM-structural equations, then, identification 2 derived in the paper can linearly "inversely" estimate the underlying RES equations from the directly-estimated OVAR equations and the inversely-estimated RES equations can be used to make policy predictions that satisfy Lucas's critique. If Sims considered directly-estimated OVAR equations to fit in-sample data adequately (credibly) and their inversely-estimated RES equations to make accurate (credible) out-of-sample policy predictions, then, he should consider the inversely-estimated RES equations to be credible. Thus, inversely-estimated RES equations by identification 2 can reconcile Lucas's advocacy for making policy predictions with RES equations and Sims's advocacy for directly estimating OVAR equations.
The paper also derives identification 1 of structural coefficients from RES coefficients that contributes mainly by showing that directly estimated reduced-form OVAR equations can have underlying LREM-structural equations.
Liquidity derivatives
(2022)
It is well established that investors price market liquidity risk. Yet, there exists no financial claim contingent on liquidity. We propose a contract to hedge uncertainty over future transaction costs, detailing potential buyers and sellers. Introducing liquidity derivatives in Brunnermeier and Pedersen (2009) improves financial stability by mitigating liquidity spirals. We simulate liquidity option prices for a panel of NYSE stocks spanning 2000 to 2020 by fitting a stochastic process to their bid-ask spreads. These contracts reduce the exposure to liquidity factors. Their prices provide a novel illiquidity measure refllecting cross-sectional commonalities. Finally, stock returns significantly spread along simulated prices.
A common practice in empirical macroeconomics is to examine alternative recursive orderings of the variables in structural vector autogressive (VAR) models. When the implied impulse responses look similar, the estimates are considered trustworthy. When they do not, the estimates are used to bound the true response without directly addressing the identification challenge. A leading example of this practice is the literature on the effects of uncertainty shocks on economic activity. We prove by counterexample that this practice is invalid in general, whether the data generating process is a structural VAR model or a dynamic stochastic general equilibrium model.
Im Herbst 2020 wurden im Rahmen des vom Land Hessen geförderten LOEWE-Schwerpunktes „Infrastruktur – Design – Gesellschaft“ zwei Haushaltsbefragungen durchgeführt mit dem Ziel, die Akzeptanz und Wirkung verkehrspolitischer Maßnahmen zur Neuaufteilung öffentlicher Räume in Frankfurt am Main zu untersuchen. In der ersten (postalischen) Befragung (N = 853) wurden in den vier Befragungsgebieten Altstadt/Sachsenhausen-Nord, Nordend, Eschersheim und Bonames/Nieder-Eschbach mithilfe des Random-Route-Verfahrens Fragebögen verteilt. In der parallel dazu stattfindenden reinen Onlinebefragung (N = 1.422) wurden alle Frankfurter Stadtteile angesprochen.
Ziel des Berichts ist es, die methodische Vorgehensweise der Erstellung, Durchführung und Auswertung der Erhebung zu beschreiben. Dazu werden die thematischen Schwerpunkte und Zielsetzungen der beiden Befragungen erläutert, die Vorgehensweise bei der Verteilung und Verbreitung der Befragungen und des Pretests sowie die Aufbereitung der Datensätze. Weiterhin werden der Rücklauf und die Repräsentativität der Stichproben analysiert und zuletzt potentielle Fehlerquellen thematisiert.
Der Beitrag stellt dar, wie Online-Plattformen in den Bereichen Urheberrecht, Hassrede und Desinformation in der EU reguliert wurden. Die Analyse ergibt einen Regulierungskreislauf, der in vier Phasen ablief. Bis zum Jahrtausendwechsel war es die Legislative, die einen allgemeinen gesetzlichen Rahmen für die Online-Kommunikation in Gestalt von Äußerungsverboten und Haftungsprivilegierungen definierte. Dieser Rahmen wurde im folgenden Jahrzehnt von den Betreibern der neu entstehenden Plattformen unter Ausnutzung ihres privatautonomen Gestaltungsspielraums implementiert. In der dritten Phase ab ca. 2010 verschärften die Judikative und die Exekutive die sich aus dem allgemeinen gesetzlichen Rahmen ergebenden Mindestanforderungen an die Bekämpfung von Urheberrechtsverletzungen, Hassrede und Desinformation. In der vorläufig letzten Phase des Regulierungskreislaufs ab 2017/2018 ergriff wieder der Gesetzgeber die Initiative, indem die Standards, die in den Phasen zwei und drei entwickelt worden waren, kodifiziert und teilweise nochmals angehoben wurden. Damit ist der Kreislauf der unionalen Plattformregulierung allerdings nicht zu seinem Ende gekommen. Vielmehr ist bereits erkennbar, dass sich nun wieder eine eher experimentell-tastende Phase privatautonomer Implementierung und ko-regulativer Fortentwicklung des neuen gesetzlichen Rahmens anschließt. Der Beitrag schließt mit einer kurzen Bewertung dieser Entwicklung hin zu mehr hoheitlicher Kommunikationskontrolle.
European banks have substantial investments in assets that are
measured without directly observable market prices (mark-to-
model). Financial disclosures of these value estimates lack
standardization and are hard to compare across banks. These
comparability concerns are concentrated in large European
banks that extensively rely on level 3 estimates with the most
unobservable inputs. Although the relevant balance sheet
positions only represent a small fraction of these large banks’
total assets (2.9%), their value equals a significant fraction of core
equity tier 1 (48.9%). Incorrect valuations thus have a potential to
impact financial stability. 85% of these bank assets are under
direct ECB supervision. Prudential regulation requires value
adjustments that are apt to shield capital against valuation risk.
Yet, stringent enforcement is critical for achieving this objective.
This document was provided by the Economic Governance
Support Unit at the request of the ECON Committee.