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.

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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

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


Letzte Änderung: 01.06.2017



Wirtschaftswissenschaftliche Fakultät

Professur Finanzmarkttheorie

Peter Merian-Weg 6
4002 Basel

Tel.  +41 61 207 33 16
Fax  +41 61 207 08 98