Contributions published at Finance (Per Nils Anders Östberg)

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.

Mergers and acquisitions (M&As) provide a good framework for shedding light on how corporate social responsibility (CSR) activities influence firms’ stock market performance. Using a large sample of US M&As, this study analyzes whether CSR created value for acquiring firms’ shareholders prior to and during the global financial crisis of 2007-2009. CSR scores are calculated using the MSCI ESG KLD Stats database. The results suggest that there is no effect of CSR on acquirer announcement returns. Additionally, no effect of CSR activities on acquirer announcement returns is found comparing the time period prior to the global financial crisis to the time period during the global financial crisis, suggesting that high CSR acquirers do not outperform during times of economic downturn. The empirical evidence, therefore, indicates that CSR has no impact on M&A performance and that therefore the performance must mainly be driven by other factors.

The asset class of Private Equity was introduced to the public when the book “Barbarians at the Gate” was released by Bryan Burrough and John Helyar in 1990. Back then, the Private Equity industry was mainly focused on leveraged buyouts with the goal of splitting companies into piec-es and sell off these pieces to other market participants. This LBO wave of the late 1980s and early 1990s was driven by cheap debt and attempts to recreate returns as in the case of RJR Nabisco by Kohlberg Kravis Roberts & Co. Over the years, the Private Equity industry evolved from a rather niche market to a main player by increasing raised capital from roughly $240bn per year in 2000 to more than $1´400bn in 2021. In the light of relatively high management fees and performance fees for Private Equity funds, the question remains, if the liquidity risk premia are being compensated and if the fund performance follows a pattern, which might be predictable. Also, the two main private capital strategies, Private Equity and Venture Capital, might have dif-ferent development paths and predictors which could lead to different observable performance indicators. With the help of a major Private Equity-database this study answers the question, if there is a performance difference between Private Equity funds and public markets and if we can predict ex-post Private Equity (buyout) performance with ex-ante, relative neutral, predictors. We conclude that there is a significant overperformance of Private Equity funds in rela-tion to public markets, which ultimately compensate the liquidity risks involved. However, we are not able to identify significant, across the board, ex-ante predictors for ex-post performance of these funds.

This paper examines abnormal bank equity returns around the announcement and implementations of the largest central bank liquidity operations to date. Those were conducted by the European Central Bank (ECB) at the height of the sovereign debt crisis in 2011 and 2012. I find that banks in countries perceived as being relatively riskier at the time experienced larger positive abnormal equity returns. Relating country-level abnormal returns to country-level liquidity uptake shows that banks with higher liquidity uptake profit disproportionately more from larger returns over this period. This provides evidence that the ECB alleviates stress in the euro area through the provisioning of relatively more liquidity to banks in riskier countries.

To maintain bank relationship, borrowers have motives to discipline themselves by forcing out underperforming CEOs. In this paper, we show that the state ownership in emerging markets renders this disciplinary mechanism ineffective. Using the contract information of bank loans for Chinese listed firms, we find that higher bank loan intensity overall does not affect the probability of forcing out an underperforming CEO. The absence of disciplinary effect is driven by the bank-firm pairs in which either the borrower or the lender is state-owned. However, the disciplinary effect is significant if a firm’s bank loans mostly consist of secured and short-term bank loans. Bank loans increase the likelihood of a forced CEO turnover, especially when joint-equity banks serve as the main lender. Overall, we propose that state ownership is an important factor driving the inefficiency of credit market in emerging countries.

To curtail the spread of the novel Coronavirus countries implemented several different countermeasures. This thesis analyzes the relationship between the severity of COVID-19 measures and their economical and financial impact. It is found that containment measures lead to poorer stock market recovery after it crashed at the beginning of the pandemic. The prevailing country-specific circumstances mainly determine the bond yields, whereas income support is the only measure which has a milder effect. For macroeconomic factors, only a few minor correlations are found, but the initial country-specific circumstance is usually the decisive factor.

This thesis uses the event study methodology to examine US mergers and acquisitions deals before and during the COVID-19 pandemic. In particular, stock prices after the announcement of the deal are observed. It was assumed in advance that when a deal was announced, stock prices would rise more sharply during the COVID-19 pandemic than before, especially in poorly performing sectors. But there was no clear evidence for target firms to report higher cumulative abnormal returns during the pandemic period. However, acquiring firms reported significantly higher cumulative abnormal returns across all transactions during the pandemic.In particular, same-sector mergers and acquisitions transactions were valued significantly higher during the pandemic. The sectors that suffered the most since beginning of the pandemic did not all achieve higher shareholder returns during the pandemic. However, same-sector transactions led to significantly higher cumulative abnormal returns for all shareholders of acquiring firms in these sectors.

This paper examines if exposure towards climate risk reported in regulatory disclosures impacts asset returns. Doing so, it uses machine learning algorithms to quantify 8-K, 10-K as well as Management Call scripts. Training the algorithms to distinguish between opportunities as well as regulatory and physical climate risks, the thesis finds that an increased disclosure is positively associated with asset returns in the time-series. Also, opportunities and regulatory threats show an economically and statistically significant effect on the cross-sectional variation of asset returns, while physical exposure is only marginally priced. Based on these findings, the paper aims to further challenge standard approaches in empirical asset pricing that assume a sparse model configuration and faultless variable selection. Testing the results in a high-dimensional regression setting, a model-selection method that accounts for selection mistakes is proposed. This approach is argued to consistently evaluate the marginal variation of climate risk exposure relative to a large pool of factors. Consistent with earlier results, explanatory power is monotonically reduced for each specification due to the larger absorption of the underlying asset variation based on the covariate structure. However, opportunity-based exposure is shown to maintain statistical significance beyond the explanatory power of the factor pool.

This thesis has conducted a thorough examination of the performance of two distinct pairs trading strategies — the cointegration and copula methods — on three equity markets, namely the US, Japanese, and Swiss markets using daily closing prices from January 2000 to December 2020. Those strategies lead to mean excess daily returns, ranging from -2.4185 (-3.7430) to 3.5026 (2.1405) basis points before (after) transaction costs depending on the portfolio size and on the analyzed equity market. After adjusting for numerous risk variables, all strategies, except for the Japanese market based on the copula method after transaction costs, exhibit statistically significant alphas.

Multiple asset pricing theories predict that large price changes should be associated with abnormal trading volume, inducing investor rebalancing and possibly leading to flights. In contrast, consistent with market microstructure theories, this paper documents freezes, a reduction in trading volume (approximately 30% relative to the previous trading week) during market stress episodes in the European sovereign bond market. We trace the market freezes to increasing transaction costs driven by reduced risk bearing capacity of market makers.

This paper analyses the determinants of cash holdings for a data sample consisting of non-financial Swiss firms listed in the Swiss-All-Share Index from 2000 to 2020. The median cash ratio overall companies in 2020 ranges at a substantial 15% of total assets. The results show statistically significant strong negative relation of cash holdings towards capital expenditures and the financial leverage ratio of a firm while the R&D expenses and the net working capital highlight a positive relation. Moreover, the precautionary motive has become more important for small companies.

The primary purpose of the thesis is to analyze whether the decision and the announcement of a company to engage in a significantly large divestiture can yield positive abnormal market returns. The event-study methodology is employed for this purpose by utilizing two models to calculate the expected returns. The results for both models indicate a positive and significant market reaction for divesting firms during the announcement day as well as during a small event window. In addition, the study hypothesizes that conglomerate firms would benefit even more from divesting and that high managerial ownership would result in more divestitures. However, both of these hypotheses could not be confirmed in the analysis.

This thesis examine whether macroeconomic factors have explanatory power in corporate capital structure and analyze the relationship between firm loadings and firm features. Adding the factor structure is found to largely improves the explanatory power of the standard fixed effects model, especially in samples with longer lived firms. The firm loadings can be positive or negative and the sign is correlated significantly with firm attributes, but the economical meaning of the differences of firm attributes between firms with positive/negative loadings are mostly negligible.The size of the firm loadings are related to firm characteristic variables as well.

Shiller proposed in his paper that there was excess volatility in stock market based on the variance bounds theory deduced from efficient market model. This thesis replicates Shiller’s approach for Swiss market with monthly SMI prices and dividends data from 1988 to 2017. Furthermore, this thesis questions Shiller’s original assumptions and shows that if those assumptions are relaxed one by one, the excess volatility in Swiss share market could be much smaller or even eliminated.

This Thesis examines how risk factors are priced in Switzerland from 1991 to 2019. Firstly, the Carhart four-factor model is applied, nding positive premiums for value and momentum and a negative premium for size. Momentum performs steadily throughout the whole period, while, consistent with international ndings, value stocks did not outperform growth stocks in the last decade. All Carhart factors improve the explanation of returns and are relevant to the Swiss market. Secondly, the model is extended with an international fear factor, and consistent with theory I nd that global fear is priced on the Swiss stock market and that stocks with low sensitivity to global uncertainty exhibit lower returns.

This thesis aims to shed light on whether and how UK, German, Austrian and Swiss stock listed firms usedthe unprecedentedsituation caused byCovid-19as an opportunity to postpone dividends and thereby secure bridge financingfrom equity holders.Across the four analysed jurisdictions, 26.1% of index-listedcompanies postponed their annual general meetings (AGMs). On average, the AGMswerepostponed by approximately two months. Postponers showeda lower dividend yield than non-postponers. The results from the probit analysis showeda negative relationshipbetween cash reserves and AGM postponementsand that more liquid firms were less likely to postpone their AGMs.

Dividends are a frequently used instrument for companies to distribute profits. The odigliani-Miller propositions state that under their assumptions this does not influence share value. Dividend clientele and signalling models are two different types of models that deal with problems in the assumptions of Miller and Mogdiliani. Economic crisis introduces additional volatility, which is used to examine the abnormal returns around dividend announcement and payout. The thesis finds that on both dates there are positive abnormal returns that become larger when dividends are increased and paid out in crisis, which indicates that dividends are used as a signalling device.

This thesis studies the connection between company performance and corporate governance, thereby focusing on the role of anti-takeover defense mechanisms. It investigates a number of specific determinants as the principal-agent problem or the respective legal frameworks which impact corporate governance. The sample includes 936 US and 134 Swiss firms for the years 2005 to 2019. For the empirical analysis, three takeover defense indices are developed and regressed against Tobin’s Q and ROA. Results find empirical evidence that having a higher index value results in a significant lower firm performance and profitability controlling for other factors like firm’s size or leverage.

Factor Investing is a well-established allocation approach in equities with over 50 years of research, testing and documentation. However, in fixed income it had seen limited implementation and only recently portfolio managers and funds of active investing started considering factor investing techniques for the asset allocation. In our analysis, we implement factor investing in European government bonds and we analyse the factors’ performance. Our results show that there are significant factors in European sovereign debt market and that factor-tilted portfolios can outperform benchmark portfolio. This investment approach yields premia also in an ultra-low interest rate environment where the yield hunt is more challenging for investors and portfolio managers.