The European Commission is increasing its pace towards completing the European Banking Union. A European Deposit Insurance Scheme (EDIS) should be the Banking Union’s third pillar. Germans are very sceptical of EDIS, in part because Germany has never had a single deposit insurance scheme. Instead, cooperative banks, savings banks and private banks administer their own deposit insurance systems without […]
Most economists assume that bond prices merely reflect fundamental factors such as the bond’s interest rate, its face value and the likelihood that the bond issuer defaults. Bond issuers that are more likely to default will have to offer a higher interest to compensate the buyer for the higher risk.
Most economists stop here. However, for real-world bonds, it is […]
The period 1990 to 2009 has witnessed private firms being promoted as independent borrowers in the global capital market. For a sample of 85 emerging market economies, in terms of percentage measures, the private sector publicly non-guaranteed share of total external debt on average increased from less than 5 per cent in 1990 to about 17 per cent in […]
Why do asset price bubbles in real markets happen? Experimental asset markets have pursued the reasons for a long time. Our research clarifies them by distinguishing between two effects, confusion and strategic uncertainty.
The asset price bubbles observed in real markets are often regarded as irrational exuberance, as pointed by Professor Robert Shiller (Nobel laureate in 2013). However, we succeed […]
An article by Kathleen Kahle and René M. Stulz on LSE Business Review analyses the shrinking number of public corporations in the US. We find this phenomenon also in Germany. In our study, we find a decline in the number of listed companies in Germany driven by a decline in initial public offerings (IPOs) and an increase in delistings:
Society could save billions of dollars every day if trading in commodities, energy and securities was made more competitive and efficient through a minor rule change. That is the topic of my new research paper.
Every day, auctions and exchanges around the world trade bonds, stocks, currencies, electricity, metals, commodities, securities and financial instruments worth trillions of dollars. Thus even […]
Speaking in January 2014, Michel Barnier (then the European Commissioner for Internal Market and Services and now the Commission’s chief negotiator with the UK over Brexit) justified new rules on securities exchange, which will come into full force in January 2018, in the following way:
‘The MiFID II reform means that organised trading of financial instruments must shift to multilateral […]
What causes financial bubbles? Before the 2008 crisis, this question was often neglected, but after the recent meltdown of the global financial market, it has attracted renewed attention among academics and policy-makers.
Before the crisis, the majority of economists assumed that investors trade financial assets at the so-called fundamental price, which reflects the “real” economic value of companies. In fact […]
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 […]
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 […]
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 […]
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 […]
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.
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 […]
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 […]
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 […]
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 […]