Günter Franke

Exchange rate volatility and international trading strategy

Abstract It is usually argued that an increase in exchange rate volatility reduces the volume of international trade as trading firms are risk averse. This paper shows that exporting firms benefit under fairly general conditions from an increase in exchange rate volatility. Firms optimally adjust their export volumes to the level of the exchange rate. Exporting is an option which is exercised if profitable. In addition, the paper presents conditions under which the volume of international trade grows with exchange rate volatility.

Information diffusion in electronic and floor trading

Abstract The attractiveness of floor trading versus anonymous electronic trading systems for traders is analysed. We hypothesize that in times of low information intensity, the insight into the order book of the electronic trading system provides more valuable information than floor trading, but in times of high information intensity, this is not true. Thus, the electronic systems market share in trading volume should decline when information intensity increases. This hypothesis is tested by DTB and LIFFE data on Bund-Future trading in the period 1991 to 1995. In the first years of trading, the DTBs market share is inversely related to price volatility and trading volume as proxies for information intensity. In recent years, this relation fades away; this can be explained by the high frequency of transactions which implies a steady flow of information on transactions.

Performance and Policy of Foundation-owned Firms in Germany

This paper compares performance and policy of foundation-owned firms and of listed corporations in Germany. Foundations have no owners so that there exist no individuals with financial ownership claims on firms which are wholly owned by foundations. This suggests weaker outside control of foundation-owned firms implying lower profitability. The empirical findings show a slightly better performance of foundation-owned firms compared to corporations. Foundation-owned firms display higher labour intensity, lower labour productivity, and lower salary levels. This policy promotes job security without endangering the viability of foundation-owned firms.

Zum Problem der Bewertung von Unternehmungen und anderen Investitionsgütern

ZusammenfassungZunächst wird ein Totalmodell ohne Kalkulationszinsfüße zur Bewertung eines Investitionsobjektes beschrieben. Danach wird geprüft, inwieweit die Kalkulationszinsfüße, die aus den Schattenpreisen der Finanzrestriktionen von investitionstheoretischen Totalmodellen hergeleitet werden, zur Ermittlung des exakten Wertes mit Hilfe der herkömmlichen Kapitalwertformel geeignet sind.SummaryFirst we give a description of a model for evaluating investment objects without using costs of capital. Then the question is discussed, to what extent the costs of capital, derived from the dual variables of the financial restrictions of the models described first, are suitable for exact valuation by using the common present-value formula.

Expected utility with ambiguous probabilities and ‘irrational’ parameters

Savages expected utility theory has been criticized for various reasons. Two of these are: (1) Subjective probabilities may be more or less ambiguous; this may affect the preference order. Savages theory rules out any such effect. (2) Savages theory rules out any influence of certain parameters of a probability distribution on the preference order. Such parameters are fractiles or pairs of fractiles, e.g., which have gained widespread attention as risk measures.This paper generalizes expected utility theory to include effects of ambiguity and those parameters on the preference order. Basic to this generalization is the classic paper by Herstein/Milnor.

On tests of the arbitrage pricing theory

SummaryIn the arbitrage pricing theory, developed by Ross, asset returns are generated by common and residual factors which are not prespecified. This paper shows that exact arbitrage pricing exists in a finite economy if and only if a specific mean-variance efficient portfolio with zero residual variance exists. Zero residual variance is the essential testable implication of the arbitrage pricing theory. Moreover, it is shown that tests of this theory using either principal component analysis or factor analysis to extract factors appear to be strongly biased against the theory.ZusammenfassungIn der von Ross entwickelten Arbitragebewertungstheorie werden die Wertpapierrenditen von gemeinsamen und individuellen Faktoren erzeugt, die vorab nicht spezifiziert werden. Es wird gezeigt, daß eine exakte Arbitragebewertung bei endlich vielen Wertpapieren genau dann besteht, wenn ein bestimmtes (μ,σ)-effizientes Portefeuille ohne unsystematisches Risiko existiert. Dies ist die wesentliche testbare Implikation der Arbitragebewertungstheorie. Außerdem wird gezeigt, daß Tests, soweit sie die Hauptkomponentenmethode oder die Faktorenanalyse verwenden, einen erheblichen Bias gegen die Theorie aufweisen.

Loss Allocation in Securitization Transactions

This paper analyses the loss allocation to First, Second and Third Loss Positions in European collateralized debt obligation transactions. The quality of the underlying asset pool plays a predominant role for the loss allocation. A lower asset pool quality induces the originator to take a higher First Loss Position, but, in a synthetic transaction, a smaller Third Loss Position. The share of expected default losses, borne by the First Loss Position, is largely independent of asset pool quality, but lower in securitizations of corporate loans than in those of corporate bonds. Originators with a good rating and low Tobin´s Q prefer synthetic transactions.

Semiparametric Modeling of Stochastic and Deterministic Trends and Fractional Stationarity

The distinction between stationarity, difference stationarity, deterministic trends as well as between short- and long-range dependence has a major impact on statistical conclusions, such as confidence intervals for population quantities or point and interval forecasts. SEMIFAR models introduced by [6] provide a unified approach that allows for simultaneous modelling of and distinction between deterministic trends, difference stationarity and stationarity with short- and long-range dependence. In this paper, recent results on the SEMIFAR models are summarized and their potential usefulness for economic time series analysis is illustrated by analyzing several commodities, exchange rates, the volatility of stock market indices and some simulated series. Predictions combine stochastic prediction of the random part with functional extrapolation of the deterministic part.

Betriebliche Investitionstheorie bei Risiko

ZusammenfassungDer folgende Überblicksbeitrag untersucht betriebliche Investitionsentscheidungen bei Risiko. Dabei werden verschiedene Situationen zugrundegelegt, so die des Alleinunternehmers, als auch die einer Mehrheit von Gesellschaftern, wobei weiterhin danach unterschieden wird, ob die Gesellschafter auf dem Kapitalmarkt Wertpapiere handeln können oder nicht. Wenn Handel möglich ist, kann dieser zum Hedging von Investitionsrisiken eingesetzt werden. Da Wertpapiere auch zu Investitionszwecken gekauft werden können, begünstigt die Handelbarkeit von Wertpapieren nicht notwendig betriebliche Realinvestitionen. Ein Crowding out solcher Investitionsprojekte ist möglich. Bezüglich der Investitionsrisiken, die auf dem Kapitalmarkt gehedgt werden können, erweist sich die Zahl der Gesellschafter als irrelevant. Sie ist jedoch relevant bezüglich der nichthedgebaren Risiken. Eine Zunahme der Gesellschafter bewirkt eine Verteilung des nicht-hedgebaren Risikos auf mehrere Personen. Trifft ein Manager die Investitionsentscheidungen, dann hängt sein Entscheidungsverhalten auch von seiner Entlohnung ab. An einem betrieblichen Hedging kann er insbesondere dann interessiert sein, wenn Unternehmensverluste seinen Arbeitsplatz gefährden. Ob er Optionen oder Termingeschäfte für Hedgingzwecke vorzieht, hängt davon ab, ob er neben der Vermeidung von Verlusten auch die Chance hoher Gewinne wahren will. Wenn ja, dann zieht er Optionen vor. Der folgende Beitrag wendet das Instrumentarium der Risikotheorie auf die betriebliche Investitionsentscheidung an. Zweck ist dabei nicht die Ableitung von in der Praxis unmittelbar verwendbaren Entscheidungsregeln, sondern die einheitliche Anwendung eines Entscheidungskonzeptes in ganz unterschiedlichen Situationen.SummaryThis paper reviews corporate investment decisions under risk. Various situations are discussed such as that of a single entrepreneur or that of several owners. In addition, tradable securities may or may not exist. If such trade exists, investment risks can be hedged. But securities can be purchased for investment purposes, too; thus trade in securities does not necessarily favor real corporate investments. Crowding out of such investment projects is possible. The number of owners of a firm does not matter for the allocation of hegdeable risks. A larger number of owners permits a wider distribution of non-hedgeable risks, however. If a manager decides on investments, then his decisions depend also on his income which may be a function of the firms profits. He may display a strong interest in hedging corporate risks if corporate losses endanger his job. Whether or not he prefers forward to option contracts for hedging purposes, depends on his preferences. If he wants to preserve the chance of high profits, then he prefers options. This paper applies risk theory to investment decisions of firms. It is not intended to derive decision rules which can be easily implemented in the real world; the purpose of the paper is to demonstrate the application of the same concept for decision making in widely different situations.

Conflict and compatibility of wealth and welfare maximization

SummaryRecently it has been shown that a corporation maximizing the market value of its shares does not necessarily maximize the welfare of its shareholders. It is assumed that the shareholders have either quadratic or exponential utility functions and identical future expectations. This paper drops these assumptions and analyzes in general the conditions under which market value resp. wealth maximization is compatible with welfare maximization. It will be shown that conflict and compatibility of these objectives depend on the degree of relative risk aversion of the shareholders.ZusammenfassungKürzlich wurde gezeigt, daß ein Unternehmen, das den Marktwert seiner Aktien maximiert, nicht unbedingt die Wohlfahrt seiner Aktionäre maximiert. Dabei wurde unterstellt, die Aktionäre hätten entweder quadratische oder exponentielle Nutzenfunktionen und gleiche Zukunftserwartungen. Hier werden unter Aufgabe dieser Annahmen die Bedingungen analysiert, unter denen Marktwert bzw. Reichtumsmaximierung mit Wohlfahrtsmaximierung kompatibel ist. Es wird gezeigt, daß Konflikt und Kompatibilität dieser Ziele von der Höhe der relativen Risikoaversion der Aktionäre abhängen.