Contributions published at Quantitative Finance (Marc Chesney)

We document the existence of a premium in the green bond market based on the greenness of green bonds. Using BERT, a natural language processing method for textual analysis, we develop a novel measure for bonds’ greenness and document that a 10 percent increase in the bond’s greenness corresponds to a decrease in annualized yield by between 4.86 to 8.71 basis points. In addition to greener bonds enjoying higher premiums, we find evidence that issuing a green bond has positive spillover effects on the pricing of subsequent conventional bonds’ issuance. Overall, our findings are consistent with firms relying on 'green' debt instruments to lower capital costs and raise cheaper financing. Keywords: Green bonds, BERT model, Sustainable Finance, Bond premium

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L’implication d’universitaires dans le lobbying d’Uber est à replacer dans le contexte du néolibéralisme qui a généré de nouvelles spécialités dans les écoles de finance et de commerce, dénonce le professeur de finance à l’Université de Zurich Marc Chesney, qui pointe au passage le financement public de ces «mercenaires en col blanc».

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Waste electrical and electronic equipment (WEEE) is a fast-growing stream of municipal solid waste. It is considered an extraordinary hazardous and harmful category of waste due to its high content of various chemical pollutants. An efficient circular economy for WEEE does still not exist on a global scale, so that no more than 20% is recycled properly and responsibly. On the other hand, WEEE is a treasure trove of expensive and scarce secondary raw materials. One of them is the metal tantalum, which is found on old circuit boards and is not yet recycled from them. This paper examines the opportunity of setting up an innovative tantalum recycling project in an existing Central European (especially Swiss) WEEE recycling company from a technical, economic and financial point of view. First, a discounted cash flow model is used to assess the profitability of the project. Then, a real options model is applied to find the optimal investment timing strategy under the prevailing uncertainties of the project, and to answer the central research questions about whether, when and how much money to invest in the project. Results indicate that it would be technically feasible to integrate this new process into the existing WEEE recycling procedure by making minor adjustments. The net present value is clearly positive under different managerial and technical scenarios, but the real options model recommends waiting until estimated revenues are twice the estimated costs. This is likely to happen in the next few years.

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We study the post-Great Recession market for retail investment products. With an experiment, we show that low interest rates drive investment demand but not product differentiation. Elicited margins go hand in hand with investors' underestimation of complex risk exposures. We empirically document that (i) rising complexity follows market growth, (ii) issuer margins increase in complexity, and (iii) simpler products first-order dominate more-complex products. Furthermore, biased dependency perceptions predict margins in the cross-section. Consistent with limited buy-side learning and growing sell-side competition, banks employ strategic price complexity to mitigate competitive pressure. Our findings showcase how low interest rates fuel excessive risk-taking.

Das Finanzieren von Massenvernichtungswaffen wie auch die Lieferung von schweren Waffen muss sofort eingestellt werden.

The aim of this master’s thesis is to highlight the highly debated asset class of third-party litigation finance and its impact. Different authors have presented contradicting opinions involving positive and negative arguments regarding the social impact of this asset class. This master’s thesis investigates the quantitative investor impact of litigation finance. Recent definition on investor impact assist to identify that an investment in third-party litigation finance provides capital allocation to an undersupplied market and helps firms and individuals to access justice. To quantify the impact generated each underlying position of two European litigation finance funds are assessed. By means of a binary system each position is evaluated according to its likelihood of being litigated in the absence of an external funder. The realised claim value from cases which can only be funded with the external capital represents the impact generated. With the investor funding of the two funds, a total realized claim value of more than EUR 800 million was achieved, representing the impact generated. Even if the data justifies impact return, the extent to which the funder is altruistically motivated remains unclear.

The goal of this paper is to determine how wealth, income and trading relate to the transac-tion values of individuals and how the employee count and the economic sector relate to the transaction values of small and medium-sized enterprises. Surveys were used to collect data on the transaction values of small and medium-sized enterprises and individuals in Switzer-land for 2020. The surveys gathered 58 observations for individuals and eight observations for small and medium-sized enterprises. For this reason, only the data on individuals were processed through regressions and mediation analysis. The findings show that income and wealth impact the transaction volume. Contrary to previous research, both income and wealth regressively affect the transaction volume of individuals rather than progressively. This paper indicates that wealth, but not income, affects the likelihood of an individual to trade; yet, trading itself does not correlate with the transaction volume of individuals. The data on small and medium-sized enterprises, however, was insufficient for any meaningful statistical analysis. Further data gathering and research efforts are needed.

Le financement de la production d’armes de destruction massive doit cesser immédiatement!, écrit Marc Chesney, professeur à la faculté d’économie de l’Université de Zurich et auteur du livre «La crise permanente».

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We document the effects of the COVID-19 pandemic on digital finance and fintech adoption. Drawing on mobile application data from a globally representative sample, we find that the spread of COVID- 19 and related government lockdowns led to a sizeable increase in the rate of finance app downloads. We then analyze factors that may have driven this effect on the demand-side and better understand the “winners” from this digital acceleration on the supply-side. Our overall results suggest that traditional incumbents saw the largest growth in their digital offerings during the initial period, but that "BigTech" companies and newer fintech providers ultimately outperformed them over time. Finally, we drill-down further on the adoption of fintech apps pertaining to both the asset and liability side of the traditional bank balance sheet, to explore the implications that the accelerated trends in digitization may have for the future landscape of financial intermediation.

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Nach den Milliardenverlusten ist die Credit Suisse angeschlagen. Dennoch zahlt sie insgesamt 1400 Kaderleuten ein Millionensalär.

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ESG ratings have gained a lot of prominence in today’s world, but currently, there is no standardization when it comes to these ratings. Therefore, a lot of divergence between different raters’ assessments of any given firm can be seen. From previous research on this topic, this divergence has been decomposed into scope, measurement, and weights divergence at a metalevel, but there has been no study that looks at qualitative information from a specific sector to understand measurement divergence in detail. For this purpose, the pharmaceutical industry is chosen. Analysis using data from four different raters and three representative companies are chosen and the categories of “water” and “supply chain” are analysed in detail. The findings are that the divergence in these categories are quite significant and the reason for this being that raters use different aspects to measure a given category. Further, a new set of indicators are chosen to holistically measure these categories and then analyse existing data. It can be seen that in some instances the scores provided by raters do not agree with qualitative data that is available, and that existing indicators that raters employ to measure the categories chosen, do not provide a holistic view of aspects under that category. Based on these findings, it is seen that category scores of a given from different raters are significantly different, this reflects the different indicators of the same category that is measured by the rating agencies. A case is made for a more holistic and structured scoring methodology that could potentially provide standard guidelines for rating agencies. With such standardisation, the reliability of ESG scores will increase and its real potential in influencing markets, asset prices and incentives for corporate sustainability.