D Bessey, Uschi Backes-Gellner, Dropping out and revising educational decisions: Evidence from vocational education, In: Swiss Leading House "Economics of Education" Working Paper, No. 40, 2008. (Working Paper)
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Uschi Backes-Gellner, P Moog, Who chooses to become an entrepreneur? The Jacks-of-all-trades in social and human capital, In: ISU Working Paper, No. 76, 2008. (Working Paper)
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Uschi Backes-Gellner, Zur Logik betrieblicher Qualifizierungsstrategien im internationalen Vergleich - Betriebliche Aus- und Weiterbildung als optimale Vorratshaltung, In: Swiss Leading House "Economics of Education" Working Paper, No. 20, 2008. (Working Paper)
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Uschi Backes-Gellner, Johannes Mure, The skill-weights approach on firm specific human capital: empirical results for Germany, In: ISU Working Paper, No. 56, 2005. (Working Paper)
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Joseph P Romano, Michael Wolf, Alternative Tests for Monotonicity in Expected Asset Returns, In: Department of Economics Working Paper Series, No. No. 17, 2011. (Working Paper)
Many postulated relations in finance imply that expected asset returns should monotonically increase in a certain characteristic. To examine the validity of such a claim, one
typically considers a finite number of return categories, ordered according to the underlying characteristic. A standard approach is to simply test for a difference in expected returns between the highest and the lowest return category. However, such an approach can be misleading, since the relation of expected returns could be flat, or even decreasing, in the range of intermediate categories. A new test, taking the entire range of categories into
account, has been proposed by Patton and Timmermann (2010). Unfortunately, the test is based on an additional assumption that can be violated in many applications of practical interest. As a consequence, it can be quite likely for the test to ‘establish’ strict monotonicity of expected asset returns when such a relation actually does not exist. We offer some alternative tests which do not share this problem. The behavior of the various tests is illustrated via Monte Carlo studies. We also present empirical applications to real data. |
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Felix Kübler, Larry Selden, Xiao Wei, Theory of Inverse Demand: Financial Assets, In: Finrisk Working Paper Series, No. 721, 2011. (Working Paper)
While the comparative statics of asset demand have been studied extensively, surprisingly little work has been done on the behavior of equilibrium asset prices and returns in response to changes in the supplies of securities. This is despite considerable interest in the equity premium and interest rate puzzles. In this paper, we seek to fill this void for the classic case of a representative agent economy with a single risky asset and risk free asset in both one and two period settings. It would seem natural to suppose that in response to an increase in the supply of the risky asset, its price would fall and the gross equity risk premium would increase. We show that in standard settings where preferences are represented by frequently assumed forms of expected utility, one can obtain the opposite result. The necessary and su¢ cient condition for prices (gross equity premium) to increase (decrease) with supply is determined by the sign of the slope of the asset Engel curve. This observation allows us to derive (i) sufficient conditions directly in terms of the representative agent's risk aversion properties for general utility functions
and (ii) necessary and su¢ cient conditions for the widely used HARA (hyperbolic absolute risk
aversion) class. |
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Kenneth L Judd, Felix Kübler, Karl Schmedders, Bond ladders and optimal portfolios, In: Swiss Finance Institute Research Paper Series, No. 12, 2009. (Working Paper)
Many bond portfolio managers argue that bond laddering tends to outperform other bond investment strategies because it reduces both market price risk and reinvestment risk for a bond portfolio in the presence of interest rate uncertainty. Despite the popularity of bond ladders as a
strategy for managing investments in fixed-income securities, there is surprising little reference
to this subject in the economics and finance literature. In this paper we analyze complex bond portfolios within the framework of a dynamic general equilibrium asset-pricing model. Equilibrium bond portfolios are nonsensical, implying a trading volume that vastly exceeds observed
trading volume on ¯nancial markets. Such portfolios would also be very costly and thus suboptimal in the presence of even very small transaction costs. Instead portfolios combining bond ladders with a market portfolio of equity assets are nearly optimal investment strategies, which
in addition would minimize transaction costs. This paper, therefore, provides a rationale for bond ladders as a popular bond investment strategy. |
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Marc Chesney, Remo Crameri, Loriano Mancini, Detecting informed trading activities in the options markets: Appendix on subprime financial crisis, In: NCCR FINRISK Working Paper Series, No. 726, 2012. (Working Paper)
This appendix extends the empirical results in Chesney, Crameri, and Mancini (2011). Informed trading activities on put and call options are analyzed for 19 companies in the banking and insurance sectors from January 1996 to September 2009. Our empirical findings suggest that certain events such as the takeovers of AIG and Fannie Mae/Freddie Mac, the collapse of Bear Stearns Corporation and public announcements of large losses/writedowns are preceded by informed trading activities in put and call options. The realized gains amount to several hundreds of millions of dollars. Several cases are discussed in detail. |
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Marc Chesney, Remo Crameri, Loriano Mancini, Detecting informed trading activities in the options markets, In: NCCR FINRISK Working Paper, No. 560, 2014. (Working Paper)
We develop statistical methods to detect informed trading in options markets. We apply these methods to 31 companies from various sectors over 14 years analyzing approximately 9.6 million option prices. We find that option informed trading tends to cluster prior to certain events, takes place more in put than call options, generates easily large gains exceeding millions,is not contemporaneously reflected in the underlying stock price, involves around the money options during calm times and out-of-the-money options during turbulent times. These findings are not driven by false discoveries in informed trades which are controlled using multiple hypothesis testing techniques. |
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Michal Dzielinski, News sensitivity and the cross-section of stock returns, In: NCCR FINRISK, No. 719, 2011. (Working Paper)
The paper is the first one outside the high-frequency domain to use sentiment-signed news to directly compare news and no-news stock returns. This is done by estimating
whether returns on positive, neutral and negative news days are significantly different from the average daily return for a large sample of US stocks over the period from
January 2003 to August 2010. The general results show that positive news days indeed have above-average returns and negative news days returns are below average, while the neutral news days are economically barely distinguishable from the average. The market also proves to be fast and accurate at pricing new information, as there are no signs of drift shortly after news days. On the contrary, a directionally correct and statistically significant movement can be found on the day before the news day. The cross-sectional analysis reveals significant differences in the strength of market reactions between stocks ranked on size, book-to-market or news coverage. The general results however hold across all subsamples and are also not driven by earnings announcements or past stock returns. Moreover, the average news sensitivity is itself a priced source of risk. A portfolio of stocks with high sensitivity to news outperforms a portfolio of stocks with low sensitivity by a statistically and economically significant 0.84% per
month. This news premium seems to primarily relate to the high impact of news in situations of general uncertainty. |
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Amelie Brune, Thorsten Hens, Marc Oliver Rieger, Mei Wang, The war puzzle: Contradictory effects of international conflicts on stock markets, In: NCCR FINRISK, No. 688, 2011. (Working Paper)
We study a number of large international military conflicts since World War II where we establish a news analysis as a proxy for the estimated likelihood that the conflict will result in a war. We find that in cases when there is a pre-war phase, an increase in the war likelihood tends to decrease stock prices, but the ultimate outbreak of a war increases them. In cases when a war starts as a surprise, the outbreak of a war decreases stock prices. We show that this paradox cannot be explained by uncertainty about investment decisions, nor by the expectation about a quick end of the war or ambiguity aversion. A connection of this puzzling phenomenon to mean-variance preferences of investors is suggested. |
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Sven Christian Steude, Weighted maximum likelihood for risk prediction, In: NCCR FINRISK, No. 689, 2011. (Working Paper)
Most time series models used in econometrics and empirical finance are estimated with maximum likelihood methods, in particular when interest centers on density and Value-at-Risk (VaR) prediction. The standard maximum likelihood principle implicitly places equal weight on each of the observations in the sample, but depending on the extent to which the model and the true data generating process deviate this can be improved upon. For example, in the context of modeling financial time series, weighting schemes which place relatively more weight on observations in the recent past result in improvement of out-of-sample density forecasts, compared to the default of equal weights. Also, if instead of accurate forecasting of the entire density, interest is restricted to just downside risk, placing more weight on the negative observations in the sample improves results further. In this paper, a third and quite general strategy of shifting more weight towards certain observations of the sample is proposed. Weights are derived from external variables that convey additional information about the true DGP, like trading volume, news arrivals or even investor sentiment. As such, those observations are down weighted that bear a high probability of being destructive outliers with no bene¯t of using them when fitting the model. Considerable improvements in forecast accuracy for a variety of data sets and different time series models can be realized. |
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Antonio Miralles, Marek Pycia, Foundations of pseudomarkets: Walrasian equilibria for discrete resources, In: Working paper series / Department of Economics, No. 385, 2021. (Working Paper)
We study the assignment of discrete resources in a general model encompassing a wide range of applied environments, such as school choice, course allocation, and refugee resettlement. We allow single-unit and general multi-unit demands and any linear constraints. We prove the Second Welfare Theorem for these environments and a strong version of the First Welfare Theorem. In this way, we establish an equivalence between strong efficiency and decentralization through prices in discrete environments. Showing that all strongly efficient outcomes can be implemented through pseudomarkets, we provide a foundation for using pseudomarkets in market design. |
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Felix Kübler, Karl Schmedders, Life-cycle portfolio choice, the wealth distribution and asset prices, In: Swiss Finance Institute Research Paper, No. 10-21, 2010. (Working Paper)
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Raphael Studer, Does it matter how happiness is measured? Evidence from a randomized controlled experiment, In: Working paper series / Department of Economics, No. No. 49, 2011. (Working Paper)
A continuous and a discrete rating scale were implemented for a single item happiness question in a representative survey. A randomized controlled experiment enables unique analyses on data quality and distributions, which suggest superiority of the continuous scale. Results raise doubts about earlier inferences drawn on correlates of happiness. So far only self-assessed discrete happiness data have been used for research into the determinants of happiness. However, distribution distortions were found for the numerically labeled discrete scale, especially for women. Through this discretization bias, the widely reported gender happiness inequality puzzle can be explained. |
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Gregori Baetschmann, Kevin E Staub, Rainer Winkelmann, Consistent estimation of the fixed effects ordered logit model, In: Working paper series / Department of Economics, No. No. 4, 2011. (Working Paper)
The paper re-examines existing estimators for the panel data fixed effects ordered logit model, proposes a new one, and studies the sampling properties of these estimators in a series of Monte Carlo simulations. There are two main findings. First, we show that some of the estimators used in the literature are inconsistent, and provide reasons for the inconsistency. Second, the new estimator is never outperformed by the others, seems to be substantially more immune to small sample bias than other consistent estimators, and is easy to implement. The empirical relevance is illustrated in an application to the effect of unemployment on life satisfaction. |
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Raphael Studer, Rainer Winkelmann, Specification and estimation of rating scale models - with an application to the determinants of life satisfaction, In: Working paper series / Department of Economics, No. No. 03, 2011. (Working Paper)
This article proposes a new class of rating scale models, which merges advantages and overcomes shortcomings of the traditional linear and ordered latent regression models. Both parametric and semi-parametric estimation is considered. The insights of an empirical application to satisfaction data are threefold. First, the methods are easily implementable in standard statistical software. Second, the non-linear model allows for flexible marginal effects, and predicted means respect the boundaries of the dependent variable. Third, average marginal effects are similar to ordinary least squares estimates. |
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Timo Boppart, Structural change and the Kaldor facts in a growth model with relative price effects and non-Gorman preferences, In: Working paper series / Department of Economics, No. No. 02, 2011. (Working Paper)
Growth of per-capita income is associated with (i) significant shifts in the sectoral economic structure, (ii) systematic changes in relative prices and (iii) the Kaldor facts. Moreover, (iv) cross-sectional data shows systematic expenditure structure difference between rich and poor households. Ngai and Pissarides (2006) and Acemoglu and Guerrieri (2008) are consistent with observation (i)-(iii) but abstract form non-homotheticities of preferences. However, they cannot replicate the structural change between the U.S. goods and service sector quantitatively. This paper presents a growth model, which reconciles both forces of structural change - relative price and income effects - with balanced growth on the aggregate. The theory is simple and parsimonious and contains an analytical solution. The model can replicate shape and magnitude of the nonbalanced sectoral facts as well as the balanced nature of growth on the aggregate. In a structural estimation, the model’s functional form is exploited to obtain estimates for the relative importance of income and price effects as determinants of the structural change. |
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Bruno Frey, Paolo Pamini, Lasse Steiner, What determines the World Heritage List? An econometric analysis, In: Working paper series / Department of Economics, No. No. 01, 2011. (Working Paper)
The official intention of the UNESCO World Heritage List is to protect the global heritage. However, the existing List is highly imbalanced according to countries and continents. Historical reasons, such as historical GDP, population, and number of years of high civilization, have a significant impact on being included on the List. In addition, economic and political factors unrelated to the value of heritage, such as rent seeking by bureaucrats and politicians, the size of the tourist sector, the importance of media, the degree of federalism, and membership in the UN Security Council, influence the composition of the List. |
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Beatrice Brunner, Andreas Kuhn, Financial incentives, the timing of births, birth complications, and newborns' health: evidence from the abolition of Austria's baby bonus, In: Working paper series / Department of Economics, No. No. 48, 2011. (Working Paper)
We analyze the fertility and health effects resulting from the abolition of the Austrian baby bonus in January 1997. The abolition of the benefit was publicly announced about ten months in advance, creating the opportunity for prospective parents to (re-)schedule conceptions accordingly. We find robust evidence that, within the month before the abolition, about 8% more children were born as a result of (re-)scheduling conceptions. At the same time, there is no evidence that mothers deliberately manipulated the date of birth through medical intervention. We also find a substantial and significant increase in the fraction of birth complications, but no evidence for any resulting adverse effects on newborns' health. |
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