The Neuer Markt as an institution of creation and destruction

The market for publicly traded equity is the heart of a modern capitalist system. In particular, the market for newly listed firms is in turn a bellwether for the public equity market because the entry gives firms expanded access to capital, allowing them to emerge and grow. On the other hand, stock markets also serve as an institution to reallocate productive resources from non-surviving to surviving firms. We describe the Neuer Markt—a special segment of the Frankfurt Stock Exchange in Germany—as an institution to foster the creation of new firms and their destruction.

The Stambaugh bias in panel predictive regressions

This paper analyzes predictive regressions in a panel data setting. The standard fixed effects estimator suffers from a small sample bias, which is the analogue of the Stambaugh bias in time-series predictive regressions. Monte Carlo evidence shows that the bias and resulting size distortions can be severe. A new bias-corrected estimator is proposed, which is shown to work well in finite samples and to lead to approximately normally distributed t-statistics. Overall, the results show that the econometric issues associated with predictive regressions when using time-series data to a large extent also carry over to the panel case. The results are illustrated with an application to predictability in international stock indices.     

Efficiency and Market Power Gains in Bank Megamergers: Evidence from Value Line Forecasts

This paper examines whether gains in bank megamergers occur due to efficiency improvements or the exercise of market power using financial statement line item forecasts from Value Line to infer the effect of the merger on prices and quantities. The average megamerger is associated with cost‐efficiency improvements. In the cross‐section, efficiency gains are limited to market expansion mergers while market overlap mergers and Too‐Big‐To‐Fail (TBTF) mergers exhibit monopoly gains. Efficiency gains dissipate when the resulting megabank size exceeds $150 billion in assets or 1.5% of gross domestic product indicating that banks thought to be TBTF are likely to be “Too‐Big‐To‐Be‐Efficient.”     

The anatomy of fragile states in Sub‐Saharan Africa: Understanding the interrelationship between fragility and indicators of wellbeing

According to most classifications, Sub‐Saharan Africa is the region of the world with the highest presence of fragile states. In this paper we examine the relationship between fragility and poverty, suggesting that countries may become trapped in a vicious circle of fragility and low levels of wellbeing. We consider fragility as a continuum and begin by reviewing available measures. These show the high presence of fragility in Sub‐Saharan Africa and allow the more fragile countries to be identified. There is seen to be a strong association between fragility, poor growth performance, and lower wellbeing in Sub‐Saharan Africa. Building on the strong evidence for the two‐way relationship between economic growth and poverty, we present an analysis of how the vicious circle linking poorer welfare outcomes and fragility may be able to be broken. We argue that building successful institutions is key here, and this can be enabled by specific policy interventions that are both poverty reducing and productive.     

In which financial markets do mutual fund theorems hold true?

The mutual fund theorem (MFT) is considered in a general semimartingale financial market S with a finite time horizon T, where agents maximize expected utility of terminal wealth. The main results are:

Competition between Exchanges: Euronext versus Xetra

Exchanges in Europe are in a process of consolidation. After the failure of the proposed merger between Deutsche Börse and Euronext, these two groups are likely to become the nuclei for further mergers and co‐operation with currently independent exchanges. A decision for one of the groups entails a decision for the respective trading platform. Against that background we evaluate the attractiveness of the two dominant continental European trading systems. Though both are anonymous electronic limit order books, there are important differences in the trading protocols. We use a matched‐sample approach to compare execution costs in Euronext Paris and Xetra. We find that both quoted and effective spreads are lower in Xetra. The differences are more pronounced for less liquid stocks. When decomposing the spread we find no systematic differences in the adverse selection component. Realised spreads, on the other hand, are significantly higher in Euronext. Neither differences in the number of liquidity provision agreements nor differences in the minimum tick size or in the degree of domestic competition for order flow explain the different spread levels. We thus conclude that Xetra is the more efficient trading system.     

EEG 2017 — Mehr Markt bei der Erneuerbare-Energien-Förderung?

Within four years now, the German Renewable Energy Resources Act (EEG) has been amended in 2016 for the third time. The main point of the current reform is the extension of bidding schemes to determine the remuneration of renewable power generation. The articles analyses whether or not the expected decrease in costs and improvement of deployment control could ever occur, and considers the critique of thwarting the energy transition and jeopardising the diversity of actors involved in the industry.