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

High-quality institutions of conflict management can serve to mitigate the negative effects of adverse external shocks and social conflict on long-run economic growth. But in addition to the benefits (production-enhancing cooperation), there are also costs (taxes and rent-seeking) of conflict-management institutions like corporatism and trust. We examine both positive and negative influences in the context of a simple growth model. Contrary to previous research, we predict a non-linear relationship between institutions and growth. The empirical evidence from a panel for the years 1961-1995 shows that neo-corporatism and trust have each had independent positive effects on long-run growth in the EU, suggesting that the diminishing product range of institutions has not yet been reached. Under an increasing size of government, however, both institutions lead to a dominating negative rent-seeking effect.

The paper models fixed rate tenders, where a central bank offers to lend central bank funds to financial institutions. Bidders are constrained by the amount of collateral they have. We focus on the strategic interaction between bidding in the tender and trading in the interbank market after the tender, where short squeezes could occur. We examine how the design of the tender affects equilibrium bidding behavior and the incidence of short squeezes. Important elements in the analysis include the type of policy implemented by the central bank as well as bidders' initial endowments of liquidity and collateral. Three instruments for softening short squeezes are identified: the tender rate, the tender sizes, and admissible collateral. Increasing the tender rate or size tends to decrease the probability and severity of a short squeeze. The possibility of a short squeeze may induce bidders to oversubscribe even if the tender rate is higher than the competitive rate.

In the incomplete markets model with numeraire asset and a single consumption good we show that even with homothetic preferences, on compact sets of prices continuity, Walras’ identity and homogeneity characterize the properties of market excess demand. This result is proved by an extension of [J. Econ. Theory 12 (1976) 197] to the case of incomplete markets.

The paper analyzes the process of market selection of investment strategies in an incomplete asset market. The payoffs of the as-sets depend on random factors described in terms of a discrete-time Markov process. Market participants make dynamic investment de-cisions based on their observations and time. We show that a trader distributing wealth across available assets according to the relative expected returns eventually accumulates the entire market wealth. The result obtains under the assumption that the trader's strategy is asymptotically distinct from the CAPM strategy (prescribing in-vestment in the market portfolio). This assumption turns out to be essentially necessary for the conclusion.

The paper considers the evolution of portfolio rules in markets with stationary returns and endogenous prices. The ultimate success of a portfolio rule is measured by the wealth share the rule is eventually able to conquer in competition with other portfolio rules. We give necessary and sufficient conditions for portfolio rules to be evolutionary stable. In the case of i.i.d. returns we identify a simple portfolio rule to be the unique evolutionary stable strategy. Moreover we demonstrate that mean-variance optimization is not evolutionary stable while the CAPM-rule always imitates the best portfolio rule and survives.

We analyze the duration of bank relationships using a unique panel data set of listed firms and their banks from the bank-dominated Norwegian market. We find that firms are more likely to leave a bank as the relationship matures. Small, profitable, and highly leveraged firms maintain shorter bank relationships, as do firms with multiple bank relationships. These findings are robust to censoring, alternate specifications for the distribution of relationship duration, and other control variables relevant to the Norwegian market. Overall, our results cast doubt on theories suggesting that firms become locked into bank relationships.

Using the insights of current research in corporate finance and financial institutions, the authors briefly present a consistent economic framework for looking at insurance. Shareholders of insurance companies provide risk capital that is invested in financial assets and therefore earns the market return of the assets it is invested in. However, due to the legal and fiscal environment insurance companies are in, they have a competitive disadvantage at investing, and this gives rise to frictional capital costs. The core competence of insurers is in managing the size of these frictional capital costs. Insurers must ensure that they can sell insurance for a price in excess of what they need to produce the cover they sell and compensate the incurred frictional costs on risk capital. It is through the ability to do so that insurers create shareholder value.

The purpose of this paper is to explain why some markets for financial products take off while others vanish as soon as they have emerged. To this end, we model an infinite sequence of CAPM-economies in which financial products can be used for insurance purposes. Agents' participation in these financial products, however, is restricted. Consecutive stage economies are linked by a mapping (“transition function”) which determines the next period's participation structure from the preceding period's participation. The transition function generates a dynamic process of market participation which is driven by the percentage of informed traders and the rate at which a new asset is adopted. We then analyse the evolutionary stability of stationary equilibria. In accordance with the empirical literature on financial innovation, it is obtained that the success of a financial innovation, a mutation, depends on a sufficiently high trading volume, marketing, and new and differentiated hedging opportunities. In particular, a set of complete markets forming a stationary equilibrium is robust with respect to any further financial innovation while this is not necessarily true for a set of incomplete markets.

In this paper we analyze the long-run dynamics of the market selection process among simple trading strategies in an incomplete asset market with endogenous prices. We identify a unique surviving financial trading strategy. Investors following this strategy asymptotically gather total market wealth. This result generalizes findings by Blume and Easley (1992) to any complete or incomplete asset market.

We model owners as solving a multidimensional problem when taking their firms public. Owners can affect the level of underpricing through the choices they make in promoting an issue, such as which underwriter to hire or on what exchange to list. The benefits of reducing underpricing in this way depend on the owners’ participation in the offering and the magnitude of the dilution they suffer on retained shares. We argue that the extent to which owners trade off underpricing and promotion is determined by the minimization of their wealth losses. Evidence from a sample of U.S. initial public offering confirms our empirical predictions.

Rats explore their surroundings through rhythmic movement of their mystacial vibrissae. At any given moment, multiple whiskers are simultaneously moved and may contact the surface of an object. The aim of this work is to understand how simultaneous multiple-whisker deflections are processed in the somatosensory cortex. Arrays of 25 electrodes were inserted into the vibrissal representation of barrel cortex of adult rats. Multi-unit responses were recorded during (i) stimulation of single whiskers, and (ii) simultaneous stimulation of two, three or four whiskers of a whisker arc or whisker row. The whole-array response elicited by the simultaneous stimulation of multiple-whiskers (observed response) was compared to a multiple-whisker response predictor, defined as the sum of the whole-array responses to the separate stimulation of the corresponding single whiskers. The observed response to stimulation of four whiskers was nearly always less than the predicted response, indicating a sublinear summation of multiple coincident inputs. Examining the poststimulus time course of sublinearity, we found that the earliest cortical response to whisker deflection – reflecting the thalamocortical volley - was linear, whereas the successive cortical response was highly sublinear. This suggests a cortical origin of the phenomenon.

This paper examines how bank relationships affect firm performance. An empirical implication of recent theoretical models is that firms maintaining multiple bank relationships are less profitable than their single-bank peers. We investigate this empirical implication using a data set containing virtually all Norwegian publicly listed firms for the period 1979-1995. We find a robust and economically relevant negative two-way correspondence between the number of relationships and sales profitability. We also find that firms replacing a single relationship are on average smaller and younger than those firms choosing not to replace a single relationship.

One of the striking phenomena in recent stock market history is the continuous rise in stock prices. Classical explanations for this phenomenon have argued that these apparently high valuations are either caused by measurement error in accounting data, or by high expected future growth in dividends. In this paper, it is shown that a high degree of uncertainty about expected growth in dividends can lead to an increase in stock prices. Moreover, dividend growth uncertainty can lead stock prices to over- or underreact to changes in dividends.

Let Ω be a bounded domain with fractal boundary, for instance von Koch's snowflake domain. First we determine the range and the kernel of the trace on ∂Ω of Sobolev spaces of fractional order defined on Ω. This extends some earlier results of H. Wallin and J. Marschall Secondly we apply these results in studying Dirichlet forms related to subordinate reflecting diffusions in non–smooth domains.

We consider differential operators of type Au(x) &=& u(x) + (-1)^{t_1}\frac{\partial ^{2t_1} u(x)}{\partial x_1^{2t_1}}+ (-1)^{t_2}\frac{\partial ^{2t_2} u(x)}{\partial x_2^{2t_2}} , x&=& (x_1,x_2)\in \R ^2 , and Sierpinski carpets \G⊂\R$^2$. The aim of the paper is to investigate spectral properties of the fractal differential operator A$^{−1}$∘tr$^Γ$ acting in the anisotropic Sobolev space W$^{(t1,t2)}$2(R$^2$) where tr$^Γ$ is closely related to the trace operator tr$_Γ$.

Der vorliegende Bericht behandelt die Ergebnisse der ersten Phase des Forschungsvorhabens "Finanzsystementwicklung - Spar- und Kreditinstitutionen für die Armen". Das Vorhaben wurde von der Gesellschaft zur Förderung des Nord-Süd- Dialogs (NSD) initiiert und koordiniert. Es untersuchte im Auftrag der Wissenschaftlichen Arbeitsgruppe für weltkirchliche Aufgaben der Deutschen Bischofskonferenz Mikrofinanzdienstleistungen als Instrument der Armutsbekämpfung und stellte die Frage, unter welchen Bedingungen Mikrofinanzinstitutionen arme Bevölkerungsgruppen breitenwirksam erreichen und gleichzeitig die eigene institutionelle Nachhaltigkeit gewährleisten können. In den Forschungsprozeß waren sowohl Vertreterinnen und Vertreter von Mikrofinanzinstitutionen im Süden als auch Angehörige aus Förderinstitutionen in Deutschland und Frankreich aktiv einbezogen. Kernelemente waren Fallstudien über die Ansätze der vertretenen Mikrofinanzinstitutionen und ein Dialogworkshop mit allen Beteiligten. Der Bericht richtet sich an kirchliche und nicht-kirchliche Förderinstitutionen und Mikrofinanzanbieter, die an einer zielgerechten Förderung und Verbreitung erfolgsversprechender Mikrofinanzansätze interessiert sind.

Obra que surge de la necesidad de contar con una referencia de fácil acceso a uno de los instrumentos de cobertura de riesgo cambiario más eficientes: la opción sobre la divisa. Esta versión, publicada originalmente en francés, ha sido actualizada y adaptada al caso latinoamericano, en particular al mexicano. El libro expone gradualmente, yendo de lo simple a lo complicado, las herramientas relacionadas con el riesgo cambiario, expuestas a manera de hacerlas más accesibles al lector, quien además podrá remitirse directamente a los anexos que contienen los aspectos técnicos y los métodos de valuación de las opciones más recientes.