Contributions published at Quantitative Finance (Marc Chesney)

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Nachhaltige Firmenkredite sind ein aufkommendes Thema im Schweizer Kreditmarkt. Zusätzlich zur Kreditfähigkeit und -würdigkeit beinhaltet die Bonitätsprüfung eine Nachhaltigkeitskomponente, wodurch die Informationengrundmenge steigt. Somit ist die Forschungsfrage naheliegend, ob sich die Informationsasymmetrien zwischen Kreditgeber und -nehmer vergrössern, sobald ein Kredit als nachhaltig deklariert wird. Zur Beantwortung der Forschungsfrage wird eine qualitative Forschungsmethode angewendet, wobei Experten aus vier verschiedenen Schweizer Banken interviewt werden. Der Fokus liegt auf den Nachhaltigkeitskriterien und deren Einfluss auf die Informationsasymmetrien. Die Ergebnisse zeigen, dass die Informationsasymmetrien bei nachhaltigen Krediten tendenziell schwächer wirken, da das zu finanzierende Unternehmen genauer analysiert wird und somit eine engere Kundenbeziehung entsteht.

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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.

To curb CO2 emissions to limit the effects of climate change, a global shift towards the uptake of Sustainable Aviation Fuels (SAF) is needed. The literature review summarizes the status quo in the production of SAF. In the experimental part, a capital investment project for pro-duction of SAF is valued as a real option (RO), and RO value is contrasted with Net Present Value (NPV). Several cost and cash flow cases are calculated, with several combinations of parameters in the option model. The results show that project is unprofitable, but the RO value behaves as predicted by the theory.

This study investigates how sustainability ratings affect the performances and flows of actively managed funds during a period of unprecedented market disruption, namely the COVID-19 crisis. This is achieved through two regression analyses on an extensive panel data. Despite some of the results with difficult interpretation, the overall research shows a positive impact of sustainability ratings on funds’ performances, and a negative one on funds’ flows. These findings are partially in line with the theory that wants sustainability to be a “luxury good”, relinquishable during a crisis, but could at the same time represent evidence of how sustainable approaches offer potentially better performances during market crashes.

In sub-Saharan Africa exists a large financing gap in the agricultural sector. The study investigates whether development finance influences the investment strategies of blended finance funds to mobilise additional private investments. For the exploratory study, fourteen semi-structured interviews were conducted, twelve with managers of blended finance funds active in agriculture in sub-Saharan Africa. The interviews were analysed using MAXQDA. The results show that development finance acts as a catalyst for the funds’ implementations. The fund managers state that without development finance their strategies would not be implementable whereby they use blended finance instruments to improve private investors’ risk-return profiles

We study how the quality of local business environments helps explain growth outcomes of micro- and small enterprise microfinance clients by drawing on long-term nationwide administrative data and a policy shock in Cambodia. The staggered launch of special economic zones, which we link to positive shocks to the business environment on both the demand and supply side, leads to significantly increased employment in micro- and small enterprises (MSEs) located in these special economic zones (SEZs), compared to enterprises in contextually similar districts that are unexposed to an SEZ. Key channels explaining the improved growth outcomes include expanded access to external markets for the enterprises’ goods and services, more dynamic labor environments, and improved credit terms and conditions. To broaden the relevance of our findings, we combine data from prominent empirical studies on microfinance and demonstrate how related business conditions identified in the enterprise growth literature help explain differences in client business outcomes found in their results. Policy implications are that a smaller but influential segment of microfinance borrowers significantly benefit from opportunities provided by improved local business environments and that governments and lenders can play active roles in facilitating the necessary improvements for such MSEs.

The purpose of this paper is to assess the optimal choice of an investor, a typical household in California, United States, in terms of whether to invest or not, in a residential scale, grid-connected, solar photovoltaic system, aiming to obtain savings in their monthly electric expenses. If they invest, they shoulder a fixed upfront cost but also accept uncertain potential savings. If they do not invest, they forego any potential savings. To assess this irreversible decision, Real Options Analysis is deployed to assess the actual benefit for the household. This approach allows us to determine whether to trigger the investments and the optimal timing to do so. Our findings show it is optimal for our investor to invest in photovoltaics; however, some delay might be advised depending on the energy production factor of specific geographical areas and the expected useful life of the equipment. The results of this study also show that it might be optimal to delay the investment between 5.5 and 12 years in some areas, which is a drawback. Our findings also show that subsidies and other incentives do not seem to be a key driver in the above-mentioned investment decision. This study contributes to the existing literature by examining the present dynamic of residential grid-connected photovoltaic systems in the most relevant market for the United States and by including an assessment of uncertainty in both electric rates and photovoltaics prices, that accounts for seasonality, price escalation and price manipulation.

This paper analyzes high-frequency exchange rate movements of the euro Swiss franc exchange rate in response to monetary policy announcements by the European Central Bank and the Swiss National Bank. Thereby, the general e↵ect, the comparison between banks and di↵erent types of monetary policy (conventional/unconventional), and market efficiency are examined. The data show that announcements by the two central banks significantly impact the EUR/CHF exchange rate from 15 minutes before to 1 hour after the announcement, with the first minute after the announcement triggering the most significant reactions, which illustrates the high efficiency of the foreign exchange market. No significant di↵erences were found between the ECB and SNB announcements. Reactions to unconventional announcements have a higher standard deviation than conventional announcements and therefore have significant e↵ects more often. However, these are not detectable in a mean value observation.

This paper analyzes high-frequency exchange rate movements of the euro Swiss franc exchange rate in response to monetary policy announcements by the European Central Bank and the Swiss National Bank. Thereby, the general e↵ect, the comparison between banks and di↵erent types of monetary policy (conventional/unconventional), and market efficiency are examined. The data show that announcements by the two central banks significantly impact the EUR/CHF exchange rate from 15 minutes before to 1 hour after the announcement, with the first minute after the announcement triggering the most significant reactions, which illustrates the high efficiency of the foreign exchange market. No significant di↵erences were found between the ECB and SNB announcements. Reactions to unconventional announcements have a higher standard deviation than conventional announcements and therefore have significant e↵ects more often. However, these are not detectable in a mean value observation.

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This paper investigates the divergence of environmental, social, and governance (ESG) ratings based on data from six prominent ESG rating agencies: Kinder, Lydenberg, and Domini (KLD), Sustainalytics, Moody’s ESG (Vigeo-Eiris), S&P Global (RobecoSAM), Refinitiv (Asset4), and MSCI. We document the rating divergence and map the different methodologies onto a common taxonomy of categories. Using this taxonomy, we decompose the divergence into contributions of scope, measurement, and weight. Measurement contributes 56% of the divergence, scope 38%, and weight 6%. Further analyzing the reasons for measurement divergence, we detect a rater effect where a rater’s overall view of a firm influences the measurement of specific categories. The results call for greater attention to how the data underlying ESG ratings are generated.

Il n’est pas acceptable que pouvoirs publics comme analystes financiers aient fermé les yeux si longtemps sur les pertes à répétition de Credit Suisse (qui n’ont pas empêché de fortes rémunérations) car au final ce sont les contribuables qui paieraient la casse le cas échéant, avertit le professeur d’économie.

This thesis examines the effect of board gender diversity on European banks’ ESG performances while considering endogeneity. The findings of the GMM on a significant positive effect highlight the importance of increasing the share of female directors in creating a sustainable banking sector. However, the positive connection is neither due to stereotypical characteristics of women nor a significant gap in values between genders of directors. Rather differences in skills and backgrounds caused by the double glass ceiling are a valid explanation. We conclude that banks should focus on overall board diversity, not just on the gender of their board members.

Privatanleger investieren gerne in nachhaltige Produkte. Der Markt wächst seit Jahren zweistellig. Auch in der Schweiz. Aber wie leicht lassen sich Anleger für das gute Gewissen ködern und sich das Geld aus der Tasche ziehen? Eine neue Studie der HSG und der Universität Zürich lässt aufhorchen.

Information asymmetries and enforcement problems often limit commercial lenders’ entry into low-income markets. Using detailed credit registry data with more than 32 million bank-borrower loan observations, we study the “failed” entry of commercial lenders into Bolivia’s microfinance market in the mid-1990s, which led to an over-indebtedness crisis. Tracing borrowers’ credit outcomes for nearly 10 years, we find that despite the commercial lenders’ poorly adapted lending technologies, stronger adverse selection, and moral hazard problems, the increase in competition carried significant short-term and long-term credit benefits to borrowers by forcing microfinance institutions to improve their loan terms and reduce rents.

Whether pursuing its true mission and reaching out to the poor is profit enhancing for financial service providers within the financial inclusion industry or not, is subject to a controversial debate in research and practice. A panel data analysis, running multivari- ate regression models, finds strong evidence suggesting that more depth of outreach is associated with higher operating costs for the financial service providers. The results also show that more depth of outreach is associated with earning higher yields on the portfolios. As The financial return is influenced by both these figures, the two findings lead to no effect on the financial return. Thus, more depth of outreach does not translate into neither higher or lower financial return. These findings could explain the divergence in the existing literature regarding the effect of outreach on financial performance.

Since the introduction of negative interest rates, several major central banks have used reserve tiering systems to lower the profitability pressure on banks. This study empirically investigates the effect of exemption threshold changes on the Swiss Average Rate Overnight (SARON), using a segmented regression approach, paired with an autoregressive integrated moving average (ARIMA) model. The study examines two unique exemption threshold changes in 2019 and 2020 using an intraday SARON time series combined with daily trading volumes on the Swiss secured money market. The main results of this study consist of a significant positive relation found between an exemption threshold change and the SARON. Additionally, an exemption threshold change seems to trigger a rebalancing process, which in turn results in a significantly higher trading volume compared to the pre-change-period. Thus, by adjusting the exemption threshold, the SNB can influence the SARON and stimulate the liquidity on the secured money market.

Pour la première fois, une étude a mesuré les engagements du secteur financier suisse en matière de transition climatique. Selon cette dernière, plus de 60% des établissements membres de l'Association suisse des banquiers ont pris des engagements pour le climat.