A new fluctuation test for constant variances with applications to finance

We present a test to determine whether variances of time series are constant over time. The test statistic is a suitably standardized maximum of cumulative first and second moments. We apply the test to time series of various assets and find that the test performs well in applications. Moreover, we propose a portfolio strategy based on our test which hedges against potential financial crises and show that it works in practice.     

Die Erwartungen der Wirtschaft für 2012

Nach einem wirtschaftlich sehr positiven Jahr 2011, mussten die ?konomischen Prognosen für das Wachstum 2012 deutlich herabgesetzt werden. Die Wirtschaftsforschungsinstitute erwarten für Deutschland nur noch ein Wachstum von 0,8%. Die Vertreter der einzelnen Industriezweige sind aber etwas optimistischer als die Prognosen für die Gesamtwirtschaft.     

Granularity of Services

Service-oriented architectures are widely discussed as a design principle for application and enterprise architectures. Nevertheless, an adequate granularity of services has not yet been researched sufficiently from an economic perspective. The finer the granularity to realize the functions of a process, the higher the number of services is, and the more effort has to be directed towards composing them. In contrast, very coarse-grained services bear the disadvantages of higher implementation costs and lower reuse potential (e.g., in different processes). The aim of the decision model proposed in this paper is to determine an adequate granularity of services from an economical perspective. Thus, degrees of freedom, which often exist for the choice of granularity after a domain analysis, can be leveraged to realize a cost-efficient solution. We illustrate the applicability and practical benefits of the decision model with an example from the context of a financial services provider.     

Enhancing the EU’s Energy Supply Security—An Evaluation of the Nabucco Project and an Introduction to Its Open Season Capacity Allocation Process

The Russian dominance of the European Union (EU)’s natural gas supplies has put the independence of the EU at risk. This paper presents an evaluation of the Nabucco gas pipeline project—considered by some to be the most economical link to new natural gas sources—to determine whether it would help the EU to diversify its gas supplies in a cost-effective way, thus improving its energy supply security in future years. Furthermore, an introduction to the Nabucco Open Season Capacity Allocation Process is given. Applying empirical methods and competitive pipeline benchmarking analysis, three hypotheses related to the Nabucco natural experiment are evaluated: while hypothesis (1) focuses on the strength of demand for the Nabucco pipeline transportation capacities, hypotheses (2) and (3) examine fair usage rights and overall cost effectiveness of this project. Empirical results show that, due to the EU’s increasing long-term gas demand and decreasing indigenous production, there is a strong demand for the Nabucco gas pipeline by gas shippers. Furthermore, the empirical survey reveals that Nabucco provides a fair capacity allocation of fifty percent to third party shippers. Finally, competitive benchmarking shows Nabucco is indeed a cost-effective new pipeline and a link to fresh natural gas sources for Europe. Based on these results, it is anticipated that “Nabucco” will not only remain the name of a famous opera, but will also become the term associated with one of the most successful energy projects in Europe.     

Trading strategies with partial access to the derivatives market

This research analyzes trading strategies with derivatives when there are several assets and risk factors. We investigate portfolio improvement if investors have full and partial access to the derivatives markets, i.e. situations in which derivatives are written on some but not all stocks or risk factors traded on the market. The focus is on markets with jump risk. In these markets the choice of optimal exposures to jump and diffusion risk is linked. In a numerical application we study the potential benefit from adding derivatives to the market. It turns out that e.g. diffusion correlation and volatility or jump sizes may have a significant impact on the benefit of a new derivative product even if market prices of risk remain unchanged. Given the structure of risk investors may have different preferences for making risk factors tradable. Utility gains provided by new derivatives may be both increasing or decreasing depending on the type of contract added.     

Probability and quantile estimation from individually micro-aggregated data

Micro-aggregation is a frequently used strategy to anonymize data before they are released to the scientific public. A sample of a continuous random variable is individually micro-aggregated by first sorting and grouping the data into groups of equal size and then replacing the values of the variable in each group by their group mean. In a similar way, data with more than one variable can be anonymized by individual micro-aggregation. Data thus distorted may still be used for statistical analysis. We show that if probabilities and quantiles are estimated in the usual way by computing relative frequencies and sample quantiles, respectively, these estimates are consistent and asymptotically normal under mild conditions.     

Daily pricing of emerging market sovereign CDS before and during the global financial crisis

In this paper, we study the determinants of daily spreads for emerging market sovereign credit default swaps (CDSs) over the period April 2002–December 2011. Using GARCH models, we find, first, that daily CDS spreads for emerging market sovereigns are more related to global and regional risk premia than to country-specific risk factors. This result is particularly evident during the second subsample (August 2007–December 2011), where neither macroeconomic variables nor country ratings significantly explain CDS spread changes. Second, measures of US bond, equity, and CDX High Yield returns, as well as emerging market credit returns, are the most dominant drivers of CDS spread changes. Finally, our analysis suggests that CDS spreads are more strongly influenced by international spillover effects during periods of market stress than during normal times.     

Ethical selving in cultural contexts: fairtrade consumption as an everyday ethical practice in the UK and Germany

Fairtrade consumers, by enacting their political and moral concerns through consumer choice, are at the same time constructing themselves as ethical selves. I will argue that they can only do so by drawing on cultural contexts. While fairtrade is instituted in supranational organizations and acts on a global level, there are still differences on a national level. On the basis of an Anglo‐German study, this paper seeks to map out the cultural contextualization of fairtrade consumption on both a supranational and a national level. The paper identifies the framing role of global consumer culture and an implicit ethics of equitability inscribed in capitalist practices of exchange and specifies how these play out differently in Germany and the UK. In both cases, there are strong references to sovereign consumer choice, and expectations of equitability in commodity exchange have been found. But while, in the British case, there is more emphasis on individual choice and taste, German fairtrade consumers seem to follow more what they perceive as an authoritative discourse. And, while British respondents envisaged the relation to be achieved with producers along the lines of a business relationship, German respondents conceptualized it more as a paternalistic employment relation between fairtrade organizations and producers. Differences will be explained in terms of distinctive consumer cultures, national moral economies and colonialist histories. I will argue that the two national settings not only offer different opportunities and challenges in terms of market success but also pose distinct ethical questions for fairtrade marketers.     

A cost-minimization approach to the international transfer of HRM/IR practices: Anglo-Saxon multinationals in the Federal Republic of Germany

The existence of host-country and country-of-origin effects is analysed by using the concept of fiscal federalism as a theoretical analogy. It is argued that multinationals try to minimize the costs of centralization and decentralization associated with cross-national personnel policy. The higher the costs of decentralization, the more likely is the existence of country-of-origin effects. The opposite holds true for increasing costs of centralization. This is tested empirically by comparing the human resource management and industrial relations (HRM/IR) practices of US and British subsidiaries operating in Germany with those of native German firms. Based on 297 valid cases, it is shown that the existence of decentralization costs is associated with country-of-origin effects in various areas of personnel management, such as the use of variable compensation, employee ownership and initial vocational training. In contrast, in the field of industrial relations (co-determination, compliance with collective bargaining), there are strong pressures to adapt to local norms, leading to host-country effects. These results indicate that a rationalistic cost-minimization approach is well suited to explaining the patterns of host- and home-country effects in regard to the HRM/IR practices of multinational enterprises.