Contributions published at Department of Banking and Finance (Pablo Koch Medina)

Fintech and big tech companies are making rapid inroads into credit markets. We hand construct a global database of fintech and big tech lending volumes for 79 countries over 2013-2018. Using a panel regression analysis, we find these new forms of digital lending are larger in countries with higher GDP per capita (albeit at a declining rate), where banking sector mark-ups are higher, and where banking regulation is less stringent. We also find that these alternative forms of credit are more developed where the ease of doing business is greater, investor protection disclosure and the efficiency of the judicial system are more advanced, and where bond and equity markets are more developed. Overall, fintech and big tech credit seem to complement other forms of credit, rather than substitute for them.

We examine the inclusion of companies into so-called ‘dark green’ funds categorized as Article 9 under the European Sustainable Finance Disclosure Regulation (SFDR). While these funds should conceptually go beyond screening and ESG integration approaches and invest only in ‘sustainable investments’, our findings raise questions on fund managers’ definition of ‘sustainable investments’. Our dataset consists of 290 public equity SFDR Article 9 funds and a resulting set of 4’463 global stocks. We develop a metric of a company’s implied ‘greenness’ based on the frequency it is included in our fund sample and analyze the factors driving this greenness score. Our results provide three main findings. Firstly, our results show that the greenness score is significantly driven by efforts to improve the corporate sustainability profile, such as science-based net zero targets or human rights policies, as well as higher ESG ratings, while violations of the UN Global Compact principles or OECD guidelines for multinational enterprises have no statistically significant effect on the greenness score. Secondly, we find differences between global and regional SFDR Article 9 funds regarding corporate sustainability coefficients and sector exposure, suggesting that regional funds’ consideration of double materiality might be more limited and the share of ‘sustainable investments’ lower. Regional SFDR Article 9 funds could therefore be more likely to be declassified. Thirdly, our analysis of declassified SFDR Article 9 funds supports this prediction and highlights that the greenness score is less driven by corporate sustainability efforts when excluding declassified funds. We claim that the implementation of SFDR Article 9 poses greenwashing risks, leaving observers with the criticism of "tout ça pour ça?".

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In this paper, we address the problem of analyzing and computing all steady states of an overlapping generation (OLG) model with production and many generations. The characterization of steady states coincides with a geometrical representation of the algebraic variety of a polynomial ideal, and, in principle, one can apply computational algebraic geometry methods to solve the problem. However, it is infeasible for standard methods to solve problems with a large number of variables and parameters. Instead, we use the specific structure of the economic problem to develop a new algorithm that does not employ the usual steps for the computation of Grobner basis such as the computation of successive S-polynomial and expensive division.

Using unique account-level data from a high inflation period in Estonia in 2005-11 and interactive fixed effect estimation, we find individual consumption to depend on personal beyond national headline inflation. Foreign shocks to selected goods’ inflation affect disproportionately households with greater consumption basket weights on these goods and make them increase consumption by an extra 1.3% per percentage point of higher inflation exposure, financed with more net borrowing. Indebted households respond stronger, consistent with a debt depreciation effect. Resulting extra demand for goods with higher inflation can reinforce inflation, letting future inflation depend on its current distribution.

We examine the roles of bank ownership and CEO political faction membership in facilitating or hindering the implementation of central bank policy in China. Specifically, we examine the response of China's commercial banks to People's Bank of China (PBC) guidelines intended to decrease mortgage lending and to slow down the rise in residential property prices. We find that both bank ownership and faction membership matter. Central government-owned banks whose CEOs are members of the specialist finance faction within the Chinese Communist Party (CCP) respond most strongly to PBC guidance, whereas provincial or city government-owned banks whose CEOs are members of a generalist faction respond least strongly. The implementation of PBC policy has real effects: in those cities where central government-owned banks with specialist CEOs constitute a larger percentage of total bank branches, house prices grew more slowly, as did the number of residential real estate transactions and the number of new listings. Where in contrast provincial and city government-owned banks with generalist CEOs dominate, the number of transactions grew faster; the rate of house price appreciation and the number of listings were however unaffected. We conclude that China's different levels of government and the CCP's different factions enjoy some discretion in responding to PBC guidance and that they exploit the discretion they are afforded to vary the strength of their response.

We provide evidence that banks increase cross-border lending in response to higher climate policy stringency in their home countries. Saturating with granular set of fixed effects and including a rich set of control variables, we show that the increase in cross-border lending is not driven by loan demand and/or other bank home country characteristics. In line with banks use cross-border lending as a regulatory arbitrage tool, the increase in cross-border lending occurs only if banks' home countries have more stringent climate policy compared to their borrowers' countries. The effect is stronger for large, lowly capitalized banks with high NPL ratios and for banks with more experience in cross-border lending. Our results suggest that without a global cooperation, cross-border lending can be a channel that reduces the effectiveness of climate policies.

Decentralized Finance (‘DeFi’) has gained tremendous momentum over the past three years by using novel approaches to disintermediating financial institutions in the provision of financial services. However, empirical research in this field is still rare and a more comprehensive understanding of the domain is a missing component in academic research. This paper develops a taxonomy based on a comprehensive literature analysis to structure this emerging field systematically. The application of the taxonomy to 278 DeFi start-ups reveals that most of the DeFi start-ups focus on Ethereum (36.3%) and have a focus on analytics and automation (52%), while only a few incorporate decentralized governance approaches (3.3%), provide decentralized exchanges (14%) or integrate off-chain data.

We provide evidence that banks increase cross-border lending in response to higher climate policy stringency in their home countries. Saturating with granular set of fixed effects and including a rich set of control variables, we show that the increase in cross-border lending is not driven by loan demand and/or other bank home country characteristics. In line with banks use cross-border lending as a regulatory arbitrage tool, the increase in cross-border lending occurs only if banks' home countries have more stringent climate policy compared to their borrowers' countries. The effect is stronger for large, lowly capitalized banks with high NPL ratios and for banks with more experience in cross-border lending. Our results suggest that without a global cooperation, cross-border lending can be a channel that reduces the effectiveness of climate policies.

We examine the novel phenomenon of sustainability-linked bonds (SLBs). These bonds’ coupon is linked to the issuer achieving a predetermined sustainability performance target. We estimate the yield differential between SLBs and non-sustainable counterfactuals by matching bonds from the same issuer. Our results show that in most cases investors pay for the improvement in sustainability, while issuers benefit from a sustainability premium. Our analysis suggests that the sustainability premium is larger for bonds with a higher coupon step-up and for callable bonds. We also show that there is a ‘free lunch’ for some SLB issuers, as their financial savings are higher than the potential penalty, and they have a call option to reduce this penalty. While our findings suggest that most SLBs incentivize sustainability improvements by offering a lower cost of capital, some companies that do not benefit from a sustainability premium seem to issue SLBs to signal their commitment to sustainability targets. The ‘free lunch’ however suggests that SLBs can also be a form of greenwashing, when they are issued purely for financial optimization without a real commitment to carry out sustainability improvements.

Professor Stefan Zeisberger vertelt over de psychologische valkuilen in het besluitvormingsproces, wat nog steeds een onderbelicht onderwerp is in de wereld van finance en investeren.

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This paper introduces a non-Gaussian dynamic currency hedging strategy for globally diversified investors with ambiguity. Assuming that ambiguity of a typical investor can be measured from market data, we associate it to non-Gaussianity of financial asset returns and compute an optimal ambiguity-adjusted mean-variance (dynamic) currency allocation. Next, we extend the filtered historical simulation method to numerically optimize an arbitrary risk measure, such as the expected shortfall. The out-of-sample backtest results show that the derived non-Gaussian dynamic currency hedging strategy outperforms the benchmarks of constant hedging and dynamic hedging with Gaussianity for all base currencies and net of transaction costs.

Mit Sünden- und Tugendaktien ist man 2022 viel besser gefahren als mit Indexfonds. Jetzt hoffen Banken und Vermögensverwalter auf ein Comeback ihrer Fonds, besonders beim moralischen Investieren.

Managers of diversified equity funds aren’t bullish on the ability of sustainable and socially-conscious companies to generate superior returns, according to new research.

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Recent studies suggest that the profitability of momentum strategies has diminished over time. Lacking any dedicated momentum research for the Swiss stock market covering price data after 2008, this study now tests the performance of various momentum strategies up to 2022. Results indicate that momentum returns on the Swiss market are significantly driven by short positions on small-sized companies as well as by a high exposure to the High-Tech sector. However, profits of momentum strategies appear to have indeed significantly diminished since 2008. Results show the low interest rate environment to be a main driver of this trend.