Camillo von Müller

Public Value of Environmental Investments: A Conceptual Outlook on the Management of Normatively Determined Risks

In this chapter we assume the perspective of environmentally conscious investors. We hold that the latter are interested in both the objective determinants and the subjective factors that determine if and to what extent owners of an externalities producing technology incorporate these externalities into their production functions. We use public value theory as concept that explains the normatively determined inclusion of externalities into a firms production function as a result of changing consumer preferences and dynamic legislative environments. We propose that environmentally conscious investing can be compared to buying a put option on public value risks and describe the mechanics of this option.

Towards a Dynamic Interpretation of Subjective and Objective Values

Joseph Schumpeter once observed that “the fundamental explanatory principle of any system of economics is always a theory of value” (1997, 151). In this chapter we focus on the distinction between “objective” versus “subjective” values and offer a theoretical solution to resulting tensions in economic and managerial thought.

Regulating High Frequency Trading: A Micro-Level Analysis of Spatial Behavior, Optimal Choices, and Pareto-Efficiency in High Speed Markets

The present paper considers the issue of High Frequency Trading (HFT) regulation. Rather than discussing macro-level effects of HFT that are still under debate (Sornette & Von der Becke, 2011) its analysis focuses on the issue of regulation from the perspective of HFT firms. Assuming that HFT generates benefits to firms by allowing them to trade at lower latencies than their competitors, binary choices of HFT investments yield Pareto-inefficient allocations if physical limits to latency reduction are taken into account. Adjustments in the payoff structure of the assumed model show that regulation can minimize negative externalities if the legislator is able to differentiate between market participants and their HFT strategies. The results of the alternated model indicate that legislators should be concerned about negative externalities of certain types of HFT firm behavior rather than about HFT itself. The transparency proposals of MifID II hence promise to serve as a finer tuned instrument for regulating HFT than a general financial transaction tax.

Why History Matters to Financial Economists: The Case of Black Monday 1987

The present paper analyses the behavior of investors before and in financial crises through the lenses of game theory (Prisoners’ Dilemma) and the empirics of financial history (Black Monday 1987), relying on data by Shiller, R.J., 1992. It discusses signal-amplifying behavior of investors (momentum trading) as potential cause for financial crises that also tests assumptions of the efficient market hypothesis.

Game Theoretical Aspects of Colocation in High-Speed Financial Markets

The current chapter examines economies of colocation in standard and low-latency trading environments. Existing evidence shows that High-Frequency Trading strategies include the exploitation of technical arbitrage opportunities. The chapter discusses limitations to arbitrage opportunities that rest on colocation (Hawk–Dove Game), and models strategic and spatial consequences for money managers such as the technological and geographic segmentation of markets (von Thunen).