In nine themed issues, 2011-2013, the Connection presents research by SFI faculty members on topics of particular interest for industry.
Focus on Risk Management
The Art of Managing Risks
- European financial institutions differ from US American institutions in many ways. This calls for a special method to measure systemic risk in Europe.
- For large corporations facing volatile input prices and holding market power in their product markets, hedging strategies necessarily interact with production plans.
- Individual investors interpret commonly-perceived information differently. The random behavior of investors’ heterogeneous beliefs affects stock returns.
- Q&A on global risks with David Cole, CRO Swiss Re.
- Interview with SFI Senior Chair Paul Embrechts, ETH Zurich
Focus on real estate
Deciphering the ups and downs of house prices
- Real estate transaction prices and appraisal values can differ notably. Their differences can reveal differences in how investors and appraisers weigh property-related information.
- Since 2007, real estate prices in Switzerland have risen dramatically. A closer analysis identifies 11 districts with strong signs of developing price bubbles.
- Real estate price indices are based on several economic variables. Only a few of these variables, though, can successfully predict which direction prices will take in the future.
- Q&A on the Swiss real estate market with Marco Salvi, Avenir Suisse.
- Interview with Donato Scognamiglio, University of Bern.
Focus on governance
The 7th SFI Annual Meeting
- Equity analysts choose to cover firms they have favorable views about. In return, firms adopt corporate policies preferred by the analysts that cover them.
- CEO turnover decisions are a credible threat capable of improving firm performance. This holds true across firms in countries with very different governance systems.
- Compensation of executive managers is a hotly debated topic in Switzerland and abroad. Ongoing SFI research provides fresh insights into this debate.
- Q&A with Sergio Ermotti, Group CEO of UBS.
Focus on trading
Buy in panic, sell in euphoria?
- Investors trade for several reasons. Knowing whether it is buyers or sellers who actively initiate trades helps identify the true motives behind trading.
- Some hedge funds manipulate reported performance by strategically timing their trading orders. This can have implications for the efficiency of financial markets.
- When investors trade stocks based on private information, prices are expected to move. The extent to which this is also true when derivatives are traded is an open research question.
- Q&A on trading structured products in Switzerland with Paolo Vanini, ZKB. Interview with Darrell Duffie, Stanford University
Focus on volatility
Reading into financial market swings
- Empirical studies reveal an ambiguous link between a firm’s equity returns and their volatility. Errors in analysts’ earnings forecasts might be part of the story.
- As high-speed trading becomes the new norm in finance, volatility modeling and forecasting techniques must account for the disturbances it causes when measuring market volatility.
- Jumps in stock returns are an even rarer event than typically thought of. Neither do the jumps seem to be caused by the release of corpo-rate or economic news.
- Q&A on modeling and trading volatility with Giovanni Barone-Adesi, University of Lugano.
- Interview with Pierre Collin-Dufresne, SFI@EPFL.
Focus on banking
The post-crisis banking landscape
- Lobbying by the US banking industry has increasingly intensified over the last decade. Yet, the bulk of the expenditures come from a few big banks with specific characteristics.
- Banks that performed poorly in the 1997 crisis performed again poorly in the recent crisis. This can be explained by a risk culture that is hard to change.
- Banks tend to lend a lot during booms and very little during recessions. This can be detrimental to society’s welfare even in the absence of a banking crisis.
- Risks in interbank lending have risen since the recent crisis. In the short term, these risks are driven by counterparty risk; on the longer term, it is liquidity risk that matters more.
- Q&A on Swiss banking with Claude-Alain Margelisch, Swiss Bankers Association.
- Interview with Andrea Tardy, J.P. Morgan Private Bank.
Focus on investments
6th Annual Meeting of the Swiss Finance Institute
- Internationally diversified equity mutual and institutional funds show little persistence in performance. Yet this does not hold their investors back from chasing returns.
- Financial crisis contagion is an elusive concept. An empirical investigation of the role of equity mutual funds in transmitting asset price shocks helps clarify the picture.
- Hedge fund return data have special, yet challenging, features. Performance evaluation tools taking these features into account reveal new insights on hedge fund investments.
- Q&A on interdisciplinary investigations of economic behavior, with Ernst Fehr, University of Zurich.
- Interview with Peter Bossaerts, Caltech and SFI@EPFL.
Focus on corporate governance
Snooping into the boardroom
- Private equity sponsors of leveraged buyout firms redesign several CEO contract characteristics. This has important implications for CEO contract design in public firms, too.
- Takeover threat affects a firm’s choice regarding the dispersion of its shareholder base. A wide shareholder base compensates for the lack of other anti-takeover measures.
- Stock prices of Swiss public firms reacted negatively to the Abzocker-Initiative. This shareholder reaction can be traced to the costs implied by the proposed reform.
- Q&A on the Swiss Code of Best Practice for Corporate Governance, with Meinrad Vetter, economiesuisse.
- Interview with Yola Biedermann, Ethos.
Focus on the financial crisis
Research insights on the 2007/8 financial crisis
- Risk panics need not necessarily be caused by fundamental changes in the economy. Investors’ perceptions of relevant economic variables also play an important role.
- Equity injections and asset buyouts are the two most common bailout methods. Which method works better may ultimately depend on the quality of the bank’s assets.
- Lehman Brothers’ default triggered a cascade of defaults among financial firms. Effective credit ratings represent an important channel of contagion between interlinked firms.
- Understanding FX liquidity risk may help policy makers assess the effectiveness of their decisions and their macroprudential tools in an appropriate and timely manner.
- Interview with Professor Jean-Charles Rochet.
SFI Public Lecture with Nobel Prize Winner Prof. Thomas J. Sargent, Zurich
Topic: The US then, Europe now
SFI Lunch & Learn Informationsveranstaltung, Zürich
SFI - SRA Event with David Cole, Zurich
Topic: Risk Culture. A Continuing Journey.
SFI - ETH Lunch Seminar with Prof. Andrew W. Lo, Zurich
Topic: Evolutionary Foundations of Economic Behavior, Bounded Rationality, and Intelligence
SFI Evening Seminar with Prof. Andrew W. Lo, Zurich
Topic: Can Financial Engineering Cure Cancer? New Approaches to Funding Biomedical Innovation.
Swiss Finance Institute and zeb.rolfes.schierenbeck.associates launch the first Swiss Asset Management Survey.
Swiss Finance Institute publishes its second White Paper on "Will investment banking survive? Regulatory changes and technological advances are altering the investment banking landscape" written by SFI Prof. Semyon Malamud.
English version, German version, French version, Italian version
More press releases...
SFI in the news
NZZ: "Hohe Risiken einer grossen SNB-Bilanz"
Agefi: "Les taux négatifs aident à affaiblir le franc"
Articles about Jean-Pierre Danthine's speech on "Swiss monetary policy facts... and fiction" at the SFI Evening Seminar (20.05.2015)
Privat: "Und wenn sich Herr Draghi irrt?"
Article by SFI Adjunct Prof. Erwin Heri on the European Central Bank expansionist monetary policy (16.05.2015)
Finanz und Wirtschaft: "Digitales Swiss Banking"
Article by SFI Adjunct Prof. Teodoro Cocca on social media and Fintech and whether they will revolutionize banking (29.04.2015)
NZZ: "Dominante Rolle von CS, UBS und ZKB"
Article on SFI Prof. Semyon Malamud's white paper on "The Future of Investment Banking" (17.04.2015)
More press coverage...