Thorsten Hens, Was heisst denn hier Freiheit?, In: Schweizer Monatshefte, 963, p. 67, 1 August 2008. (Newspaper Article)
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Martin Dudler, Experimentelle Überprüfung zweier prominenter Methoden zur Bestimmung des Risikoprofils von Anlegern, University of Zurich, Faculty of Economics, Business Administration and Information Technology, 2008. (Bachelor's Thesis)
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Ramazan Gençay, Nikola Gradojevic, Overnight interest rates and aggregate market expectations, Economics Letters, Vol. 100 (1), 2008. (Journal Article)
This paper introduces an entropy approach to measuring market expectations with respect to overnight interest rates in an inter-bank money market. The findings for the Turkish 2000-2001 borrowing crisis suggest that a dynamic, non-extensive entropy framework provides a valuable insight into the degree of aggregate market concerns during the crisis. |
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Ulrike Malmendier, Geoffrey Tate, Who Makes Acquisitions? CEO Overconfidence and the Market’s Reaction, Journal of Financial Economics, Vol. 89 (1), 2008. (Journal Article)
Does CEO overconfidence help to explain merger decisions? Overconfident CEOs over-estimate their ability to generate returns. As a result, they overpay for target companies and undertake value-destroying mergers. The effects are strongest if they have access to internal financing. We test these predictions using two proxies for overconfidence: CEOs’ personal over-investment in their company and their press portrayal. We find that the odds of making an acquisition are 65% higher if the CEO is classified as overconfident. The effect is largest if the merger is diversifying and does not require external financing. The market reaction at merger announcement (-90 basis points) is significantly more negative than for non-overconfident CEOs (-12 basis points). We consider alternative interpretations including inside information, signaling, and risk tolerance. |
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Marco Metzler, Thorsten Hens, Im Kollektiv sind Anleger nicht lernfähig, In: NZZ, 15 June 2008. (Media Coverage)
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Enrico De Giorgi, Thierry Post, Second Order Stochastic Dominance, Reward-Risk Portfolio Selection and the CAPM, Journal of Quantitative Financial Analysis, Vol. 43 (2), 2008. (Journal Article)
Starting from the reward-risk model for portfolio selection introduced in De Giorgi (2005), we derive the reward-risk Capital Asset Pricing Model (CAPM) analogously to the classical mean-variance CAPM. In contrast to the mean-variance model, reward-risk portfolio
selection arises from an axiomatic definition of reward and risk measures based on a
few basic principles, including consistency with second-order stochastic dominance. With
complete markets, we show that at any financial market equilibrium, reward-risk investors’
optimal allocations are comonotonic and, therefore, our model reduces to a representative
investor model. Moreover, the pricing kernel is an explicitly given, non-increasing function
of the market portfolio return, reflecting the representative investor’s risk attitude. Finally, an empirical application shows that the reward-risk CAPM captures the cross section of U.S. stock returns better than the mean-variance CAPM does. |
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Enrico De Giorgi, Thierry Post, Second-order stochastic dominance, reward-risk portfolio selection, and the CAPM, Journal of Financial and Quantitative Analysis, Vol. 43 (2), 2008. (Journal Article)
Starting from the reward-risk model for portfolio selection introduced in De Giorgi (2004), we derive the reward-risk Capital Asset Pricing Model (CAPM) analogously to the classical mean-variance CAPM. The reward-risk portfolio selection arises from an axiomatic definition of reward and risk measures based on few basic principles, including consistency with second order stochastic dominance. With complete markets, we show that at any financial market equilibrium, investors’ optimal allocations are comonotonic and therefore the capital market equilibrium model can be reduced to a representative investor model. Moreover, the pricing kernel is an explicitly given, monotone function of the market portfolio return, corresponding to the increments
of the distortion function characterizing the epresentative investor’s risk perceptions. Finally, an empirical application shows that the reward-risk CAPM better captures
the cross-section of US stock returns than the ean-variance CAPM does. |
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Jürg Syz, Property Derivatives: Recent Developments in Switzerland, In: Pan-European Property Derivatives Conference. 2008. (Conference Presentation)
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Ramazan Gençay, Liquidity-Induced Dynamics in Futures Markets, In: Symposium on Chaos and Complex Systems. 2008. (Conference Presentation)
Futures contracts on the New York Mercantile Exchange are the most liquid instruments
for trading crude oil, which is the world’s most actively traded physical
commodity. Under normal market conditions, traders can easily find counterparties for
their trades, resulting in an efficient market with virtually no return predictability. Yet
even this extremely liquid instrument suffers from liquidity shocks that induce periods
of increased volatility and significant return predictability. This paper identifies an important
and recurring cause of these shocks: the accumulation of extreme and opposing
positions by the two main trader classes in the market, namely hedgers and speculators.
As positions become extreme, approaching their historical limits, counterparties
for trades become scarce and prices must adjust to induce trade. These liquidity-induced
price adjustments are found to be driven by systematic speculative behavior and are
determined to be significant. |
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Ulrike Malmendier, Geoffrey Tate, Burak Güner, Financial Expertise of Directors, Journal of Financial Economics, Vol. 88 (2), 2008. (Journal Article)
We analyze how directors with financial expertise affect corporate decisions. Using a novel panel data set, we find that financial experts exert significant influence, though not necessarily in the interest of shareholders. When commercial bankers join boards, external funding increases and investment-cash flow sensitivity decreases. However, the increased financing flows to firms with good credit but poor investment opportunities. Similarly, investment bankers on boards are associated with larger bond issues but worse acquisitions. We find little evidence that financial experts affect compensation policy. The results suggest that increasing financial expertise on boards may not benefit shareholders if conflicting interests (e.g., bank profits) are neglected. |
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Igor V Evstigneev, Thorsten Hens, Klaus Reiner Schenk-Hoppé, Globally evolutionarily stable portfolio rules, Journal of Economic Theory, Vol. 140 (1), 2008. (Journal Article)
hort-run equilibrium of supply and demand. Assets pay dividends that are partially consumed and partially
reinvested. The traders use fixed-mix investment strategies (portfolio rules), distributing their wealth between
assets in fixed proportions. Our main goal is to identify globally evolutionarily stable strategies, allowing an
investor to “survive,” i.e., to accumulate in the long run a positive share of market wealth, regardless of the
initial state of the market. It is shown that there is a unique portfolio rule with this property—an analogue
of the famous Kelly rule of “betting your beliefs.” A game theoretic interpretation of this result is given. |
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Pierre Monnin, Three essays in financial economics, University of Zurich, Faculty of Economics, Business Administration and Information Technology, 2008. (Dissertation)
PART 1: Stock price with consumption CAPM: an international comparison
PART 2: Time variations in the equity premium: is it habit formation or loss aversion?
PART 3: Common exposure and systemic risk in the banking sector |
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Enrico De Giorgi, Evolutionary Portfolio Selection with Liquidity Shocks, Journal of Economic Dynamics and Control, Vol. 32 (4), 2008. (Journal Article)
The wealth dynamics of insurance companies strongly depends on the success of their investment strategies, but also on liquidity shocks which occur during unfavorable years, when indemnities to be paid to the clients exceed collected premia. An investment strategy that does not take liquidity shocks into account, exposes insurance companies to the risk of bankruptcy.
This paper analyzes the behavior of insurance companies in an evolutionary framework. We show that an insurance company that merely satisfies regulatory constraints will eventually vanish from the market. We give a more restrictive no-bankruptcy condition on investment strategies. Moreover, we characterize trading strategies that are evolutionary stable, i.e., able to drive out any mutation. We study the existence of such strategies and the conditions under which financial and insurance markets are stable. |
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Thorsten Hens, Hin und Her macht die Taschen leer, In: Denaris, 2, p. 29 - 31, 17 March 2008. (Newspaper Article)
Das A und O beim Investieren ist, systematisch vorzugehen. Wer
dies unterlässt, tappt schnell in eine psychologische Falle und muss die Konsequenzen tragen. Deshalb verlassen sich viele Anleger bei der Suche nach der richtigen Strategie auf den Rat von Vermögensverwaltern. Jedoch beraten heute noch immer einige von ihnen auf Basis von Konzepten aus den fünfziger Jahren. Interessante und nützliche Erkenntnisse der Behavioural Finance sollten vermehrt berücksichtigt werden. |
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Angelo Ranaldo, Samuel Reynard, Monetary Policy Effects on Long-Term Rates and Stock Prices, In: SSRN, No. 1099957, 2008. (Working Paper)
This paper explains the effects of monetary policy surprises on long-term interest rates and stock prices in terms of changes in expected inflation, real interest rate and dividend growth, and relates these effects to markets' perceptions of economic shocks and Fed's information set. We analyze stock and bond futures price co-movements and relate them to Treasury Inflation-Protected Securities (TIPS) data. The sign of long-term interest rate reactions is mostly driven by changes in expected inflation. The sign of stock price reactions is mostly driven by changes in expected dividend growth, but it is also sometimes determined by changes in expected real rates. The co-movements of long-term interest rates and stock prices are determined by the co-movements of expected inflation and dividend growth. The majority of Fed's interest rate surprises are expected to be followed by negative co-movements between inflation and output. This can be due to relatively more frequent "inflation" or "supply" shocks together with Fed's private information. Most Fed's actions are perceived as reactions to economic shocks rather than true policy shocks. |
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Thorsten Hens, Paolo Pamini, Grundzüge der analytischen Mikroökonomie, Springer, Berlin Heidelberg, 2008-03-01. (Book/Research Monograph)
Wie kann es sein, dass in einer Ökonomie, in welcher jeder nach seinem eigenen Nutzen strebt, kein Chaos herrscht, sondern sich eher ein Zustand des Gleichgewichts einstellt? Diese verblüffende Frage beantwortete Adam Smith mit der Metapher der "unsichtbaren Hand".
Seine Antwort beschreibt den Preismechanismus und wurde zur Initialzündung der Volkswirtschaftslehre. Analytisch präzise zeigen die Autoren in ihrem Buch die Voraussetzungen für das Funktionieren des Preismechanismus.
Schrittweise und immer detaillierter behandeln sie Angebot und Nachfrage anhand eines umfassenden Modells. Dieses enthält alle Aspekte der Grundpfeiler einer Ökonomie und bietet darüber hinaus Erweiterungen wie externe Effekte, öffentliche Güter und unvollkommenen Wettbewerb. Das Buch liefert eine wichtige Grundlage für eine mikrofundierte Makroökonomie.
* Besonderes didaktisches Konzept: Erläuterungen anhand eines Modells, das in jedem Schritt bereits alle Aspekte der Ökonomie in den Grundzügen enthält
* Zahlreiche Übungsaufgaben mit Lösungen
* Wichtige Grundlage für das Buch "Grundzüge der analytischen Makroökonomik" |
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Jürg Syz, Immobilienderivate, In: Scoach and SSPA Swiss Structured Products Association. 2008. (Conference Presentation)
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Yves In-Albon, Mini Future Zertifikate, University of Zurich, Faculty of Economics, Business Administration and Information Technology, 2008. (Bachelor's Thesis)
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Ralph Pöhner, Thorsten Hens, 12 Fragen, In: Die Weltwoche, 24 January 2008. (Media Coverage)
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Marcel Gyr, Michael Rasch, Thorsten Hens, Jetzt ist der falsche Moment für Ratschläge, In: NZZ, 23 January 2008. (Media Coverage)
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