Research

The department of finance is conducting research in a variety of areas which are of theoretical as well as practical concerns. The spectrum of research is quite broad, however the department emphasises the following areas:

Published papers can be found in the publications section.

The Behavior of Private Investors

We have a unique database which includes the trades, monthly position statements, and demographic data of more than 40’000 individual investors. The data comes from a respectable European wholesale bank and covers the period from March 2000 to June 2005. This database makes it possible to directly test various hypotheses discussed in recent papers, related to the behaviour of individual investors and the return characteristics of their portfolio. In particular, we are able to address issues related to the value added from client advisory services in private wealth management. These studies also include a closer look at various methodological issues; e.g. many studies overlook the econometric problems associated with the strong cross-sectional dependence between the returns of individual portfolios.

Persons to contact:

Related papers & documents


  • Hoechle (2006), Robust standard errors for panel datasets with cross-sectional dependence, STATA Journal 7, Number 3, pp. 1-32
  • Hoechle / Zimmermann (2007): A Generalization of the Calendar Time Portfolio Approach and the Performance of Private Investors, Working Paper presented at the EFA Meeting


A Polito-Economic Analysis of the Swiss Pension System, and Implications for an effective Pension Reform

In this project, we investigate the history and evolution of the second pillar of the social security system (i.e. the pension system) in Switzerland from a politico-economic perspective. We analyze the development of the Swiss economy as well as the political discussion surrounding the initial launch and the subsequent reforms of the system. Apparently, the political system did not support a transformation of the current system from a bureaucratic exercise towards a market-oriented system. The project seeks to evaluate the causes of this failure, and tries to outline the scope and options for feasible steps towards a real reform.

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Related papers & documents (in German only)


  • Zimmermann/ Bubb (2002):
  • Zimmermann/ Lüthje (2005): Navos
  • Lüthje (2007)


Issues related to the Estimation of Risks of Hedge Funds

Hedge fund vehicles are increasingly used as investment devices for institutional investors. The key question is how reliable traditional performance are for this asset class, in particular, how certain statistical problems (lack of market values, autocorrelation of returns) affect the risk and return figures. We finally analyse different methodological approaches to include hedge funds in asset allocation decisions, given their special risk characteristics.

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The Pricing of Commodity Futures Contracts

The pricing of commodity futures follows two theoretical strands: Valuation models based on price expectations and risk premia (Keynes), and models based on arbitrage, immediacy, inventories and convenience yields (Kaldor, Brennan, etc.). The two approaches have different empirical implications with respect to the explanation of the term structure of futures prices, or the time series properties and predictability of futures returns. We apply test strategies which improve in discriminating between these conflicting hypotheses. Persons to contact:

Related papers & documents


  • Markert, Viola (2005), Commodities as Assets and Consumption Goods: Implications for the Valuation of Commodity Futures, Doctoral Dissertation, University of St. Gallen and Basel
  • Markert, Viola and Heinz Zimmermann (2007): “The relationship between risk-premium and convenience-yield models”, forthcoming in: The Handbook of Commodity Investments, edited by Frank Fabozzi, Roland Füss and Dieter G. Kaiser, Wiley & Sons



Limited Diversification, incomplete information, and the valuation of assets: the case of private equity

Traditional asset pricing models (such as the CAPM or the APT) are based on the assumption, that investors perfectly diversify their portfolios and are therefore able to diversify firm-specific risk - they hold the market portfolio or factor portfolios. The underlying assumption is that investors do not have specific information about firms and shares, and therefore agree in the way how to diversify risks. However, to the extent that the assumption of homogeneous expectations is violated, individuals differ in their portfolio holdings, specifically, they imperfectly their diversify portfolios (compared to the former case). As a consequence, specific risk may be priced in addition to the traditional systematic risk factors. Private equity investments represent an asset class, where limited information and imperfectly diversified portfolios play an important role, and the pricing of idiosyncratic risk might be substantial. We use exchange traded instruments to control for liquidity effects.

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Estimation risk and implications for portfolio selection

Sampling errors in the estimation of expected returns, variances and covariances seriously affect the practical implementation of portfolio decisions. Various approaches have been studied in the literature to overcome these problems. First, enhanced allocation strategies seek to diversify estimation risk in a consistent way with market risks, by extending the range of “funds” which are used to represent the efficient frontier. We develop a new methodological approach which is numerically superior to existing alternatives. In addition, Bayesian methods have already been used in the 70s to combine sample based information with diffuse or data-based priors. In contrast, our approach tries to combine parameter estimates with economic “views” derived from a conditional asset pricing (i.e. a prior motivated by some equilibrium model) in an econometrically tractable way.

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Related papers & documents


  • Niedermayer, Daniel and Andreas Niedermayer (2007): A Fast Mean Variance Optimizer and Its Application to Portfolio Resampling, Working Paper
  • Niedermayer, Daniel (2007): Portfolio Optimization under Parameter Uncertainty, Working Paper


Credit derivatives - Liquidity risks and systemic issues

The growth of the credit derivative market, including credit securitization, was substantial over the past years. Many observers are increasingly concerned about the underlying risks, particularly systemic and liquidity risks, because the risk transfer mechanisms are far from being transparent: First, the instruments are becoming increasingly complex, and second, the risk exposure - and the associated credit risk - of the major intermediaries (banks, hedge funds, insurance companies) is difficult to evaluate. The resulting demand for liquidity can be substantial if markets are under stress. We investigate the liquidity management of investment banks and the behaviour of central banks. In addition, we analyze possible market structures for trading credit derivatives.

Persons to contact:

Related papers & documents


  • Zimmermann, Heinz (2007): Credit risk transfer, hedge funds, and the supply of liquidity”, Working Paper, September 2007

 

Corporate Governance, Shareholder Rights and Investor Structure

The investor structure of a listed company can substantially influence its corporate governance and shareholder rights. Shareholders can be separated by their degree of activity regarding their influence on the company. We distinguish between active and passive investors, where the former actively influence corporate governance, strategic goals and board membership of the listed company, while the latter does not.
Several studies found that this active influence tends to increase shareholder value, which is consistent with the assumption of a fair compensation for the active investors.

We try to assess empirically the influence of active investors on key financial ratios, the composition of the corporate board and consequences for employees. We employ a unique data set which is well-suited for this purpose.

Persons to contact: 

 

10.02.2011