Otto Randl

What makes stock exchanges succeed? Evidence from cross-listing decisions

Despite the increasing integration of capital markets, geography has not yet become irrelevant to finance. Between 1986 and 1997, European public companies have increasingly listed abroad, especially in the U.S. We relate the cross-listing decisions to the characteristics of the destination exchanges (and countries) relative to those of the home exchange (and country). European companies appear more likely to cross-list in more liquid and larger markets, and in markets where several companies from their industry are already cross-listed. They are also more likely to cross-list in countries with better investor protection, and more efficient courts and bureaucracy, but not with more stringent accounting standards.

A Survey of University Endowment Management Research

There is significant interest in how university endowments manage money and perform, and an emerging strand of finance research specializes in this growing area. The purpose of this paper is to survey and review the state-of-the-art in this field. We classify papers into four areas. (1) asset allocation, where we discuss the main theoretical framework and the relevant observations both across time and across types of endowment; (2) performance, where (risk-adjusted) performance is discussed and distinguished by type and size of endowment; (3) spending, where the relation to the classical views and theoretical literature is reviewed as well as what university endowments do in practice; (4) organization, where governance structure and the investment policy statement are discussed. We find that the modern framework for theoretical and empirical analysis can provide a very useful perspective for understanding the role of endowments. Nonetheless we highlight areas where more work remains to be done.

Sovereign Reputation and Yield Spreads: A Case Study on Retroactive Legislation

Abstract This paper uses recent legislation in Austria to establish a link between sovereign reputation and yield spreads. In 2009, Hypo Alpe Adria International, a bank previously co-owned by the regional government of Carinthia, had been nationalized by Austria’s central government in order to avoid a default triggering multi-billion Euro local government guarantees. In 2015, special legislation retroactively introduced collective action clauses allowing a haircut on both the bonds and the guarantees while avoiding formal default. We document that legislative and administrative action designed to partly abrogate the guarantees resulted in a loss of reputation, leading to higher yield spreads for sovereign debt. Our analysis of covered bonds uncovers an increase in yield spreads on the secondary market and a deterioration of primary market conditions.

Dividend Risk Premia

This paper studies time variation in expected excess returns of traded claims on dividends, bonds, and stock indices for international markets. We introduce a novel dividend risk factor which complements the well-known bond risk factor of Cochrane and Piazzesi (2005) for the U.S., the U.K., the Eurozone and Japan, and run predictive regressions of one-year annual excess returns on both risk factors. Employing our dividend risk factor and the bond risk factor jointly we are able to fit the variation in local stock index returns well. By aggregating over the factors of the four core regions, we create global dividend and bond risk factors which capture excess returns of most of the developed market MSCI country indices as well as a variety of other assets including high yield bonds and a volatility selling strategy. Our findings highlight the value of the information contained in the dividend and bond forward curves and suggest substantial comovement in international risk premia.

Risk Control in Asset Management: Motives and Concepts

In traditional portfolio theory, risk management is limited to the choice of the relative weights of the riskless asset and a diversified basket of risky securities, respectively. Yet in industry, risk management represents a central aspect of asset management, with distinct responsibilities and organizational structures. We identify frictions that lead to increased importance of risk management and describe three major challenges to be met by the risk manager. First, we derive a framework to determine a portfolio position’s marginal risk contribution and to decide on optimal portfolio weights of active managers. Second, we survey methods to control downside risk and unwanted risks since investors frequently have nonstandard preferences, which make them seek protection against excessive losses. Third, we point out that quantitative portfolio management usually requires the selection and parametrization of stylized models of financial markets. We, therefore, discuss risk management approaches to deal with parameter uncertainty, such as shrinkage procedures or resampling procedures, and techniques of dealing with model uncertainty via methods of Bayesian model averaging.

Implications of Index Construction Methodologies for Price and Dividend Indices

Investment products tracking the performance of equity indices have become irreplaceable in the investment community. We are the first to analyze the impact of index replacements and the choice of indexing methodologies on relative performance of both, price and dividend indices. We implement an empirical case study as well as an extensive simulation study incorporating mean reversion and momentum in the process for price-to-dividend ratios. Calibrating our model to capital-market dynamics, we find that periodically rebalanced market-capitalization weighted indices are outperformed by buy-and-hold portfolios and also by fundamentally weighted indices. Rebalancing affects dividend indices more adversely than price indices. We also highlight sensitivities of performance dispersion between different index methodologies by varying mean reversion and momentum parameters. Mean reversion dominates momentum as the driving force in our setup. For a large-cap index comprising 50 stocks, mean reversion found in European stock data lowers the price index by about 10 basis points p.a. and the dividend index by about 25 basis points p.a. relative to a buy-and-hold portfolio. We identify index size, rebalancing frequency and criteria applied to assign weights as key variables affecting the relative performance of price and dividend indices. As a consequence, choosing an index methodology can be considered as an active strategy.

Hat die Prämienbegünstigte Zukunftsvorsorge den österreichischen Aktienmarkt nachhaltig gestärkt? (Has the State-Aided Private Pension Plan Prämienbegünstigte Zukunftsvorsorge Strengthened the Austrian Stock Market?)

Bei der Einfuhrung der Pramienbegunstigten Zukunftsvorsorge (PZV) wurde mit der gesetzlichen Regelung eine hinsichtlich internationaler Diversifikation ineffiziente Asset Allocation fur Anleger in Kauf genommen, um den osterreichischen Kapitalmarkt uber nachhaltige Aktieninvestitionen zu starken. Die vorliegende Arbeit zeigt, dass der Wiener Borse okonomisch gesehen kaum nachhaltiges Aktienkapital zugeflossen sein durfte. Der Zielkonflikt aus Mindestaktienquote und nomineller Kapitalgarantie konnte nicht gelost werden.The state-aided private pension savings plan Pramienbegunstigte Zukunftsvorsorge was introduced in Austria with legal restrictions on asset allocation. Through the requirement of minimum stock market investments, the regulation requires investors to partly forgo the benefits of international diversification in order to strengthen the Austrian capital market. The present study provides evidence that the resulting conflict of interest between minimum investments in Austrian stocks and the provision of a nominal capital guarantee could not be resolved. For the market segment analyzed, inflows to the Vienna Stock Exchange proved ephemeral.