Andreas Hefti, On uniqueness and stability in differentiable symmetric games, In: ECON working papers, No. 18, 2011. (Working Paper)
Higher-dimensional symmetric games become of more and more importance for applied micro- and macroeconomic research. Standard approaches to uniqueness of equilibria have the drawback that they are restrictive or not easy to evaluate analytically. In this paper I provide some general but comparably simple tools to verify whether a symmetric game has a unique symmetric equilibrium or not. I distinguish between the possibility of multiple symmetric equilibria and asymmetric equilibria which may be economically interesting and is useful to gain further insights into the causes of asymmetric equilibria in symmetric games with higher-dimensional strategy spaces. Moreover, symmetric games may be used to derive some properties of the equilibrium set of certain asymmetric versions of the symmetric game. I further use my approach to discuss the relationship between stability and (in)existence of multiple symmetric equilibria. While there is an equivalence between stability, inexistence of multiple symmetric equilibria and the unimportance of strategic effects for the comparative statics, this relationship breaks down in higher dimensions. Stability under symmetric adjustments is a minimum requirement of a symmetric equilibrium for reasonable comparative statics of symmetric changes. Finally, I present an alternative condition for a symmetric equilibrium to be a local contraction which is more general than the conventional approach of diagonal dominance and yet simpler to evaluate than the eigenvalue condition of continuous adjustment processes. |
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Andriy Bodnaruk, Pengjie Gao, Per Nils Anders Östberg, Hayong Yun, Passive Shareholders as a Takeover Defense, In: NCCR Finrisk working paper 699, Swiss Finance Institute Research Paper No. 10-56, No. 699, 2011. (Working Paper)
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Kjell G. Nyborg, Per Nils Anders Östberg, Money and liquidity in financial markets, In: Swiss Finance Institute Research Paper, No. 10-25, 2010. (Working Paper)
We argue that there is a connection between the interbank market for liquidity and the broader financial markets, which has its basis in demand for liquidity by banks. Tightness in the interbank market for liquidity leads banks to engage in what we term “liquidity pull-back,” which involves selling financial assets either by banks directly or by levered investors. Empirical tests support this hypothesis. While our data covers part of the recent crisis period, our results are not driven by the crisis. Our general point is that money matters in financial markets. Different financial assets have different degrees of moneyness (liquidity) and, as a result, there are systematic cross-sectional variations in trading activity as the price of liquidity, or the level of tightness, in the interbank market fluctuates. |
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Felix Kübler, P. Willen, Collateralized Borrowing and Life-Cycle Portfolio Choice, In: NBER National Bureau of Economic Research 06-4, No. 12309, 2006. (Working Paper)
We examine the effects of collateralized borrowing in a realistically parameterized life-cycle portfolio choice problem. We provide basic intuition in a two-period model and then solve a multi-period model computationally. Our analysis provides insights into life-cycle portfolio choice relevant for researchers in macroeconomics and finance. In particular, we show that standard models with unlimited borrowing at the riskless rate dramatically overstate the gains to holding equity when compared with collateral-constrained models. Our results do not depend on the specification of the collateralized borrowing regime: the gains to trading equity remain relatively small even with the unrealistic assumption of unlimited leverage. We argue that our results strengthen the role of borrowing constraints in explaining the portfolio participation puzzle, that is, why most investors do not own stock.
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Kerstin Kehrle, Franziska Julia Peter, International Price Discovery in Stock Markets - A Unique Intensity Based Information Share, In: SSRN, No. 1569507, 2010. (Working Paper)
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Alexandre Ziegler, How much is Banking Secrecy worth? The case of Swiss Banks, In: NCCR, No. 331, 2011. (Working Paper)
We use an early episode of negotiations between Switzerland and the European Union to investigate the value of banking secrecy for four Swiss banks: two universal banks and two private banks. We nd that the value of banking secrecy to private banks is large, accounting for at least 8 to 14% of their market value. Perhaps surprisingly, banking secrecy appears to account for only a very small fraction of the market value of the universal banks. |
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Stéphane Guérard, Ann Langley, Struggles for meaning and struggles for control: The diffusion of bandwagon technology in two institutional environments, In: University of Zurich Working Paper, No. 101, 2009. (Working Paper)
Using comparative case studies, this paper shows how institutional contexts influence the process of diffusion of a complex technology by determining the pattern of material resources and authority available to actors in their struggles to control the technology, and by constituting the discursive resources that may be mobilized in their struggles to shape its meaning in preferred ways. The paper also reveals how governance structures may be contested and realigned when they conflict with interests legitimized by dominant institutional logics. This form of contestation and adjustment constitutes one mechanism by which institutional frameworks are tested, stretched and reproduced or redefined. |
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Michael Magill, Martine Quinzii, Jean-Charles Rochet, A critique of shareholder value maximization, In: Swiss Finance Institute Research Paper, No. 13-16, 2013. (Working Paper)
The majority of academic economists share the view that a corporation should serve the exclusive interests of its shareholders (shareholder value maximization). This view is fi rmly grounded on the extension, by Arrow (1953) and Debreu (1959) of the two welfare theorems to production economies with uncertainty and complete markets. This paper considers a variant of the Arrow-Debreu model where uncertainty is endogenous: probabilities of productive outcomes depend on decisions made by fi rms. In that case, a competitive equilibrium with shareholder value maximizing fi rms (capitalist equilibrium) is never Pareto optimal. This is because endogenous uncertainty implies that firms exert externalities on their consumers and their employees. When rms are stakeholder oriented, in that their managers are instructed to maximize a weighted sum of their shareholder value and of their contributions to consumer and employee welfares, the new competitive equilibrium (stakeholder equilibrium) improves upon the capitalist equilibrium. |
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Alexander Wagner, Relational Contracts When the Agent' s Productivity Inside the Relationship is Correlated with Outside Opportunities, In: CEPR Discussion Papers, No. DP8378, 2011. (Working Paper)
An agent can choose to forego bene ts from side opportunities and to instead provide bene ts to the principal. In return, the principal o¤ers rewards. If this exchange is not contractible, typically repeated interaction will be required to sustain it. This model allows the agents productivity in contractible and possibly also non-contractible actions inside the relationship to be correlated with productivity in side activities. This arguably realistic assumption yields several novel implications for the feasibility of relational contracts and for agent selection by principals. The analysis reveals, for example, that optimal agent productivity is often non-monotonic in the importance, to the principal, of ensuring agent reliability. |
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Marc Chesney, Luca Taschini, Mei Wang, Regulated and non-regulated companies, technology adoption in experimental markets for emission permits, and option contracts, In: Grantham Research Institute on Climate Change and the Environment, No. 41, 2011. (Working Paper)
This paper examines the investment strategies of regulated companies in abatement technologies, market participants' trading behaviors, and the liquidity level in an inter-temporal cap{and{trade market using laboratory experiments. The experimental analysis is performed under varying market structures: the exclusive presence of regulated companies; the inclusion of subjects not liable for compliance with environmental regulations; the availability of plain vanilla options. In line with theoretical models on irreversible abatement investment, the first experiment shows that regulated companies trade permits at a premium. At the same time the existence of a strict enforcement structure effectively prompts investments in new technologies.The second experiment shows that the presence of non-regulated companies adds liquidity to the market and does not increase price volatility. The last experiment enablesus to investigate the impact of the presence of cash-settled options contracts on the trading strategies of regulated companies. Their expected emissions appears to play a significant rolein the choice of their options strategy. |
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Margit Osterloh, Katja Rost, Management Fashion Pay-for-Performance, In: http://ssrn.com/author=230507, No. 230507, 2009. (Working Paper)
We show theoretically and empirically that Pay-for-Performance, like many management
fashions, has not achieved its intended aim. Our research focuses on previous
empirical studies that examine the relation between variable executive pay and firm
performance on various different dates. Our results indicate that a variable CEO income
contributes very little to the increase of the firm’s performance, and that CEO salary and
firm performance are not linked. The example of Pay-for-Performance shows that in the
long run, many management fashions do not solve the problems that they promise to
solve. |
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Kremena Bachmann, The Conditional Value of R&D Investments, In: NCCR, No. 213, 2005. (Working Paper)
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Kremena Bachmann, Peter Woehrmann, Optimal Guidance by Central Banks, In: NCCR, No. 242, 2009. (Working Paper)
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Kremena Bachmann, Thorsten Hens, The earnings game with behavioral investors, In: NCCR FINRISK Working Paper, No. 406, 2007. (Working Paper)
This paper studies how the investors' attitude towards earnings surprises affects the managers' incentives to manipulate earnings in an intertemporal context, where the consensus forecast of the analysts is not exogenously given but determined by the strategic interaction between the analysts and the managers. Our analysis shows that given the asymmetric investors' reaction to earnings surprises, managers have strong incentives to manipulate earnings. In dependence on their time preferences, managers may choose to manipulate the earnings in order to match the consensus forecasts. In this equilibrium, rational investors are systematically fooled. Assuming that managers' preferences are equally distributed in the economy, we also derive conclusions on how the absolute level of manipulation in the economy changes with the investors' preferences, the managers' compensation package and the earnings guidance they may provide to analysts. |
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Kremena Bachmann, Peter Woehrmann, Managerial Guidance and Analysts' Underreaction, In: NCCR, No. 418, 2007. (Working Paper)
Empirical investigations of analysts forecast surveys concerning earnings realizations find significant time varying biases usually attributed to the analysts liability to cognitive limitations. For example, a positive autocorrelation of analysts forecast errors is commonly explained by analysts underreaction. In this paper we develop a random dynamical system describing the evolution of analysts forecasts and firms prices and show that managerial guidance is capable to explain such inefficiencies in the analysts forecasting behavior. This result is well supported by empirical tests. In particular, we find that the managers of growth firms guide stronger than the managers of value firms, which allows further conclusions on the precision and efficiency of earnings forecasts released for value and growth stocks in line with the literature. |
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Markus Leippold, L Wu, Daniel Egloff, Optimal Investments in Variance Swap Constracts under Stochastic Volatility, In: NCCR, 2006. (Working Paper)
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Marc Paolella, ALRIGHT: Asymmetric LaRge-Scale (I)GARCH with Hetero-Tails, In: Swiss Finance Institute Research Paper, No. 10-27, 2010. (Working Paper)
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Katrin Hummel, Wolf Wenger, Martin Geiger, Auswirkungen des Bosch Production System auf die Handelslogistik im Geschäftsbereich Automotive Aftermarket der Robert Bosch GmbH, In: Universität Hohenheim, Lehrstuhl für Industriebetriebslehre, No. 44, 2007. (Working Paper)
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Urs Schweri, Klaus Schenk-Hoppe, A Simple Model of the Firm Life Cycle, In: Swiss Finance Institute Research Paper Series, No. 10-39, 2010. (Working Paper)
This paper presents a simple model of the firm life cycle that captures several stylized economic and financial features which usually require considerably more demanding approaches. We study the optimal capital accumulation policy of a financially constrained firm whose revenue is subject to an additive shock. Earnings can be paid as dividends or reinvested with the goal to maximize shareholder value. In our model, the optimal policy of firms is to reinvest earnings (rather than paying dividends) when small, hold precautionary savings, and grow larger than is socially optimal. Smaller firms also have a higher bankruptcy risk and a more volatile market value than larger firms. We observe the leverage effect and excess returns of value stocks. In the presence of business cycles, investment and initial public offerings are pro-cyclical, the default probability is counter-cyclical, and monetary policy increases excess capital holdings but otherwise has a negligible impact. |
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Urs Schweri, Market Selection in an Evolutionary Market with Creation and Disappearance of Assets, In: FINRISK Working Paper Series, No. 316, 2006. (Working Paper)
Identifying investment strategies that will survive in the long run is a main endeavor in the eld of evolutionary nance. The evolutionary perspective on the nancial market considers rather long time horizons, making the creation and disappearance of rms a highly relevant factor in determining such strategies. However, this factor has not been examined in existing research. This paper seeks to ll the gap in the literature by simulating dividends and investment strategies on the basis of initial public offerings (IPOs) and defaults. This paper simulates the evolution of the wealth shares of various investment strategies in a setup wherein dividends are nonstationary. The results show that a modied version of the generalized Kelly rule dominates competing investment strategies in terms of nal wealth. This nding agrees with the existing literature, which suggests that the generalized Kelly rule has good chances of surviving or even taking over the entire market in different setups. However, the creation and dissolution of a rm can only be observed once in the life of a company; therefore, using only a long time series of one company alone is not the most optimal method of estimating the probability that a rm will default. Instead, the dividend process must be understood by examining similar companies. This completely alters the implementation of the generalized Kelly rule compared with the way it is applied in the existing evolutionary nance literature, even when the dividend processes of the companies involved are independent of each other. |
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