A Dynamic Mean-Variance Analysis for Log Returns

We propose a dynamic portfolio choice model with the mean-variance criterion for log returns. The model yields time-consistent portfolio policies and is analytically tractable even under some incomplete market settings. The portfolio policies conform with conventional investment wisdom (e.g., richer people should invest more absolute amounts of money in risky assets; the longer the investment time horizon, the more proportional amount of money should be invested in risky assets; and for long-term investment, people should not short-sell major stock indices whose returns are higher than the risk-free rate), and the model provides a direct link with the constant relative risk aversion utility maximization in a complete market. This paper was accepted by Kay Giesecke, finance.

Bundlers' dilemmas in financial markets with sampling investors

We study banks' incentive to pool assets of heterogeneous quality when investors evaluate pools by extrapolating from limited sampling. Pooling assets of heterogeneous quality induces dispersion in investors' valuations without affecting their average. Prices are determined by market clearing assuming that investors can neither borrow nor short‐sell. A monopolistic bank has the incentive to create heterogeneous bundles only when investors have enough money. When the number of banks is sufficiently large, oligopolistic banks choose extremely heterogeneous bundles, even when investors have little money and even if this turns out to be collectively detrimental to the banks. If, in addition, banks can originate low quality assets, even at a cost, this collective inefficiency is exacerbated and pure welfare losses arise. Robustness to the presence of rational investors and to the possibility of short‐selling is discussed.

Maßnahmen von Unternehmen gegen unberechtigte Short-Sell-Attacken

In den letzten Jahren wurden verstärkt börsennotierte Unternehmen, wie Wirecard oder ProSieben, Opfer von Leerverkaufsattacken, wodurch diese massive Kurseinbrüche innerhalb kürzester Zeit erlitten. Die Arbeit untersucht solche Attacken umfassend anhand des geltenden Kapitalmarktrechts und leistet einen gewichtigen Beitrag zur Beantwortung der komplexen und bislang nur fragmentarisch behandelten Frage, wie es Unternehmen selbst möglich ist, auf solche Angriffe effektiv zu reagieren und welche Maßnahmen im Vorfeld zu treffen sind. Hierzu werden einzelne Praxisfälle ausgewertet, wobei vor allem die Informationspolitik der Unternehmen im Fokus steht.

Statistical Arbitrage in Cryptocurrency Markets

Machine learning research has gained momentum—also in finance. Consequently, initial machine-learning-based statistical arbitrage strategies have emerged in the U.S. equities markets in the academic literature, see e.g., Takeuchi and Lee (2013); Moritz and Zimmermann (2014); Krauss et al. (2017). With our paper, we pose the question how such a statistical arbitrage approach would fare in the cryptocurrency space on minute-binned data. Specifically, we train a random forest on lagged returns of 40 cryptocurrency coins, with the objective to predict whether a coin outperforms the cross-sectional median of all 40 coins over the subsequent 120 min. We buy the coins with the top-3 predictions and short-sell the coins with the flop-3 predictions, only to reverse the positions after 120 min. During the out-of-sample period of our backtest, ranging from 18 June 2018 to 17 September 2018, and after more than 100,000 trades, we find statistically and economically significant returns of 7.1 bps per day, after transaction costs of 15 bps per half-turn. While this finding poses a challenge to the semi-strong from of market efficiency, we critically discuss it in light of limits to arbitrage, focusing on total volume constraints of the presented intraday-strategy.

Don’t Sell Islamism Short

This chapter considers the first lesson that can be drawn from three historical Western ideological contests concerning political Islam and secularism today: this is no time to short-sell Islamism. The first contest pitted Catholics and Protestants over which form of Christianity should be established or favored by the state. This dispute raged in Western and Central Europe from roughly 1520 until around the 1690s. The second struggle, which emerged in the 1770s and lasted for a century, occurred in Europe and the Americas and dealt with the issue of whether the best regime was a monarchy or a republic. The third struggle, which arose in the 1910s and endured until the late 1980s, involved communism, liberalism, and fascism. The chapter argues that Westerners discount Islamism because of their own secularist bias and that Islamism is in fact a reaction to secularism.