Finance

Success attracts new players to private equity

Private Equity is a fringe asset class no more; it has evolved, matured and refined its way into the mainstream. Yet, I foresee major changes for the industry and, fully aware that forward-looking statements have a tendency to dramatically stray from future reality, wish to dare a glimpse of what may come.

Success spawns imitators, and businesses have started to […]

The shrinking number of public corporations in the US

In his famous Harvard Business Review article titled “Eclipse of the public corporation,” Jensen (1989) argues that public corporations are inefficient organizational forms because private firms can resolve agency conflicts between investors and managers better than public firms. His prediction initially appeared invalid. As shown in Figure 1, the number of public firms increased sharply in the first half […]

Can Twitter sentiment predict stock market behaviour?

The stock markets are an incredibly competitive environment and nowadays hedge funds and investment managers are rushing to find innovative ways to produce profits for their investors and their institutions. In addition to therefore understanding the impact of macroeconomic events or regulatory constraints on specific investments, they are looking at new datasets as main sources of competitive advantage.

Someone is […]

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    UK finance needs radical reform to upgrade the post-Brexit economy

UK finance needs radical reform to upgrade the post-Brexit economy

At a recent event marking the 10-year anniversary of the financial crisis, the Governor of the Bank of England Mark Carney said the UK’s banking sector could be “15 to 20 times GDP” in just a “quarter of a century”. But such proclamations beg a big question: what is the value of all this activity and wealth to the rest of […]

The US should not roll back financial regulation

In the United States, the House of Representatives has passed the Financial CHOICE Act (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs Act). This bill is intended to replace the financial market regulation of the Obama era, the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was a response to the global financial market crisis of 2008.

One […]

September 6th, 2017|Finance, Markus Demary|0 Comments|
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    Investors’ striking migration from growth to value investing over their life cycle

Investors’ striking migration from growth to value investing over their life cycle

The value premium

When a firm is listed on the stock market, the value of shareholders’ equity can be measured using both accounting and market-based methods. Accountants compute the book value of equity from the firm’s balance sheet. Since the stock is also continuously traded on the exchange, the market value of equity can be obtained by multiplying the stock […]

The exploding popularity of RegTech

Following on from our piece on WealthTech – we look at the rise and rise of RegTech (previously known as regulatory technology.) RegTech is a subclass of FinTech, and concerns the use of technology to create efficiencies in financial services for issues regarding regulatory reporting and compliance.

The graph below shows that, if nothing else, the term has exploded in […]

Seven signs of over-hyped Fintech

In 2015 Dan Davies wrote an excellent guide to Fintech business models (the “Fin”) that provided a very effective tool for looking beyond the hype. The other side of Fintech that the non-technologist (and even many experienced IT professionals) have trouble with is the actual “Tech”.  A great many people in finance have now reached the point where they […]

Why do bankers earn so much more than other professionals?

Are bankers overpaid? Do they have special qualities that make them deserve to earn more than other professionals? In this video interview, LSE professor Ulf Axelson explores why pay is so high on Wall Street relative to normal jobs.

Here is part of his answer: “(It’s) due to a combination of two characteristics of many of the types of jobs you have […]

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    ‘Flash Crash’: The first market crash in the era of algorithms and automated trading

‘Flash Crash’: The first market crash in the era of algorithms and automated trading

On 6 May 2010, US financial markets experienced a systemic intraday event that has come to be known as the “Flash Crash.”[i] The large and temporary decline in prices and the corresponding increase in trading volume in the S&P 500 E-mini Futures on 6 May is depicted in the figure below. During this extreme volatility event, which took about […]

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    ‘WealthTech’: The challenges facing the wealth management industry

‘WealthTech’: The challenges facing the wealth management industry

Technology is changing society more than ever before. The way we shop, socialise and communicate have all changed radically over our lifetimes. The financial services industry is in many ways behind the curve, with many product lines unchanged in decades. We are likely to enter an online and digital age and many firms are yet to adapt to the […]

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    Investment banks are already leaving London. Other jobs will follow

Investment banks are already leaving London. Other jobs will follow

In May 2017, new available jobs in London’s financial sector fell by 16% relative to the same period the previous year. And while Frankfurt and Dublin are emerging as the favourite destinations after Brexit in terms of attracting investment banking jobs, Warsaw is also becoming a destination. The announcements of actual or planned reassignments add up to a potential 17,000 jobs leaving London, out […]

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    Brexit will probably cause disruption in markets, but systemic risk is unlikely

Brexit will probably cause disruption in markets, but systemic risk is unlikely

With less than two years until Britain leaves the EU, the implications of Brexit for financial stability are of some concern. Two key central bankers have reached opposites conclusions, with Mark Carney worried and Mario Draghi more sanguine. Broadly in line with Draghi, we think Brexit should mostly decrease systemic risk, albeit with a potential for an increase.

Brexit will […]

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    How the Bank of France increased liquidity at no fiscal risk in the 1800’s

How the Bank of France increased liquidity at no fiscal risk in the 1800’s

The last financial crises highlight the importance of operational procedures used by central banks to cool down financial distress. To fulfill their mandate of financial stability, central banks have always featured temporary extraordinary loans to previously ineligible financial intermediaries or to the purchases of new types of assets.

Critics of those policies insist central banks lack knowledge on their counterparties […]

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    ‘Ledger Nirvana’ in trade processing either doesn’t exist or is aeons away

‘Ledger Nirvana’ in trade processing either doesn’t exist or is aeons away

One of the areas frequently mentioned as ripe for improvement by applications of the broad group of technologies known as blockchain, or distributed ledger technology (DLT), is capital markets. In the “ledger nirvana” of many blockchain proponents, market counterparties use consistent sets of trade data. They also use smart contracts, computer protocols that facilitate, verify, or enforce the negotiation […]

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    The Dodd-Frank Act doesn’t solve the principal-agent problem in asset securitisation

The Dodd-Frank Act doesn’t solve the principal-agent problem in asset securitisation

The concept of asset securitisation dates back to the Roman Empire. The practice of Pignus and Hypothec enabled a Roman citizen to secure his or her long-term debts with land. By the 11th and 12th centuries in medieval Europe, mortgages were used to finance crusades. Modern-day securitisation marks its beginning in Copenhagen, in the 1800’s, when the British set fire to the city. Proceeds from […]

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    Will the review of the Dodd-Frank Act start a regulatory competition with the EU?

Will the review of the Dodd-Frank Act start a regulatory competition with the EU?

The US-President has signed an executive order which directs the US Treasury department to revise financial regulation, especially the Dodd-Frank Act. But starting a regulatory competition with the EU will endanger global financial stability.

 The Dodd-Frank Wall Street Reform and Consumer Protection Act was initiated under the Obama administration as a response to the Global Financial Crisis. President Trump argues […]

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    How credit rating agencies calculated their ratings during the Eurozone crisis

How credit rating agencies calculated their ratings during the Eurozone crisis

Sovereign credit rating decisions taken by major agencies such as Moody’s, Standard & Poor’s (S&P) and Fitch are often considered a ‘black box.’ Empirical analysis has concluded that up to 40 per cent of credit rating decisions cannot be explained by economic fundamentals.

This is not a trivial issue because sovereign credit ratings provide a measure of the probability that […]

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    The state, inequality and the politics of economic ideas: three blind spots in shadow banking

The state, inequality and the politics of economic ideas: three blind spots in shadow banking

Shadow banking has become a systemic pillar of global finance. A typical map shows a complex network of shadow entities such as highly levered off-balance-sheet vehicles, broker-dealers, private equity firms, money market funds or hedge funds. Yet (large) regulated banks also moved in the shadows, driven by a combination of yield, regulatory and tax arbitrage in order to engage […]

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    Firms in less competitive industries are riskier investments

Firms in less competitive industries are riskier investments

The financial economics literature regularly assumes that the markets in which firms sell their products are perfectly competitive, i.e., that firms take product prices as given while making corporate decisions. Alternatively, many models in the literature assume that firms operate in isolation, and hence their decisions do not affect other firms. Reality lies in between. The most prominent firms […]