Jensen's alpha and the market‐timing puzzle

Theory predicts that market‐timing activities bias Jensen's alpha (JA). However, empirical studies have failed to find consistent evidence of this bias. We tackle this puzzle in a nested model analysis and show that the bias contains an exogenous market component that is unrelated to market‐timing skill. In a comprehensive empirical analysis of US mutual funds, we find that the timing‐induced bias in JA is mainly driven by this market component, which is uncorrelated with measured timing activities. Measures of total performance that allow for timing activities are virtually identical to JA, even if timing activities are present in the evaluated fund. Hence, we conclude that JA is a sufficient measure of total performance.     

The pricing of leverage products: An empirical investigation of the German market for ‘long’ and ‘short’ stock index certificates

This paper describes the first thorough empirical analysis of the pricing of leverage products in the German retail market. These mainly exchange-traded products with an impressive trading volume are frequently advertised as long and short futures contracts, although they are theoretically equivalent to one-sided barrier options. Issuers’ daily quotes for stock index products are compared to (i) theoretical values derived from the prices of Eurex options and to (ii) boundaries obtained from semi-static superhedging strategies. For the vast majority of products, bid and ask quotes significantly exceed both theoretical values and upper hedging boundaries, thus providing almost risk-free profits for the issuers.     

The pricing of electricity futures: Evidence from the European energy exchange

This study investigates the pricing of electricity futures at the European Energy Exchange (EEX) over the period 2002 through 2004. To calculate theoretical contract values, the reduced‐form models of J. J. Lucia and E. S. Schwartz (2002) are used, and a thorough empirical analysis by means of an out‐of‐sample test is conducted for both one‐ and two‐factor models, incorporating a constant non‐zero price of risk. Although the models are proven to capture all basic spot market characteristics and provide an accurate in‐the‐sample fit to observed futures prices, the forecasting performance is subject to biases. For instance, it was found that the relative mispricing depends on both the spot price level and the remaining time‐to‐maturity of the futures contracts. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:387–410, 2007     

Interest rate risk of German financial institutions: the impact of level,slope, and curvature of the term structure

We investigate here the sensitivity of the equity values of a large sample of German financial institutions to movements in the term structure of interest rates. While similar approaches rely on a single interest rate factor only, we quantify the exposure to changes in level, slope, and curvature, which are the driving factors of term structure changes. Our main findings are: (i) banks and insurances are exposed to level and curvature changes but only marginally to slope movements; (ii) the interest rate risk exposure depends on the banking sector investigated; (iii) level and curvature changes are priced in the cross-section of stock returns.

Lean Trees—A General Approach for Improving Performance of Lattice Models for Option Pricing

The well-known binomial and trinomial tree models for option pricing are examined from the point of view of numerical efficiency. Common lattices use a large part of time resources for calculations which are almost irrelevant for the solution. To avoid this waste of resources, the tree is reduced to a lean form which yields the same order of convergence, but with a reduction of numerical effort. In numerical tests it is shown that the proposed method leads to a significant improvement in real calculation time without loss of accuracy for a broad class of derivatives.     

Het Hypotheekbankbedrijf in crisistijd

Dit artikel bevat den zakelijken inhoud van eene voordracht, door den schrijver op 5 Mei 1934 gehouden ter jaarvergadering van de Vereeniging voor Bedrijfseconomie te Amsterdam.     

North-South interdependence: The case of the Federal Republic of Germany

This study examines economic relations between West Germany and the developing countries in the fields of trade, capital flows and migration of labour. Activity in most fields has expanded enormously since the mid-1960s; in addition the traffic has become markedly less one-way. For the purposes of analysis the developing countries are differentiated according to their economic capacity; prospects for co-operation with West Germany appear to differ markedly according to their stage of development. So German development policy, for its part, needs to employ a variety of different strategies. The more highly developed the partner country, the more the field can be left to private initiative, supported by a liberal foreign trade regime.     

Interest Rate Risk Rewards in Stock Returns of Financial Corporations: Evidence from Germany

The interest rate sensitivity of stock returns of financial and non-financial corporations is a well-known phenomenon. However, only little is known about the part of total stock returns that is attributable to the compensation an investor receives for being exposed to interest rate risk when investing in equity securities. We pursue here a benchmark portfolio approach, constructing benchmark portfolios having the same interest rate risk exposure as a particular stock. By studying the time series of returns of these asset-specific benchmarks, we find: i) Regardless of the industry considered, the interest rate risk benchmarks of German corporations have mostly earned a significantly positive reward. ii) Returns of interest rate risk benchmarks of financial institutions exceeded significantly those of non-financial corporations. iii) An investor willing to bear nothing but the average interest rate risk of German financial institutions would have earned a mean return of about or even exceeding 70% of the corresponding total stock returns. iv) Returns of the interest rate risk benchmarks of the German insurance sector were significantly higher than those of German banks, which seems to contradict conventional market wisdom that insurances hedge interest rate risks.     

Teleconference design: A technical approach to satisfaction

This article reports the findings of a teleconferencing study. Two studios were acoustically prepared, and pure audio connections and moving- picture supported audio conferences were examined in trials. Sound connections were varied with regard to number of channels, bandwidth and transmission processes; picture conferences were varied with respect to sound connection, transmission bandwidth, number of of channels, and type of representation. The authors conclude that before expensive picture transmission is considered, a successful teleconference requires good sound transmission.     

The debt burden of developing countries

According to OECD data¹, the external debts of developing countries totalled $ 625 billion at the end of 1982. As this does not include certain forms of credit, their indebtedness can be estimated at more than $ 700 billion, of which $ 500 billion consists just of bank loans. The resultant burden of interest and redemption payments has become so great that many more developing countries will be forced to seek rescheduling in the future. The debt burdens of developing countries and the vulnerability of the world financial system must be reduced for development policy reasons and also to ensure that the economies of the industrialised countries are not harmed. The following study suggests how this may be done.