Denis Schweizer | Concordia University (Canada) (original) (raw)

Papers by Denis Schweizer

SSRN Electronic Journal, 2000

Governments around the world spend trillions of dollars on business support programs that are ult... more Governments around the world spend trillions of dollars on business support programs that are ultimately phased out. We explore whether there are corporate governance or corporate finance implications of a phase-out, particularly as it pertains to any misconduct among those that lose the government support. Our setting exploits a unique natural experiment, where we obtain precise difference-indifferences estimates and measure the costs associated with misconduct (but not the loss from the removal of government support). Our data provide very strong support for the idea that there are significant financial costs to investors in companies and/or funds that lose government support.

Corporate Governance: An International Review, 2014

Venture Capital in Europe, 2007

Journal of Asset Management, 2015

SSRN Electronic Journal, 2000

Rare earth elements (REEs) have become increasingly important because of their relative scarcity ... more Rare earth elements (REEs) have become increasingly important because of their relative scarcity and worldwide increasing demand, as well as China's quasi-monopoly of this market. REEs are virtually not substitutable, and they are essential for a variety of hightech products and modern key technologies. This has raised serious concerns that China will misuse its dominant position to set export quotas in order to maximize its own profits at the expense of other rare earth user industries (wealth transfer motive). In fact, export restrictions on REEs were the catalyst for the U.S. to lodge a formal complaint against China in 2012 at the WTO. This paper analyzes possible wealth transfer effects by focusing on export quota announcements (so-called MOFCOM announcements) by China, and the share price reactions of Chinese REE suppliers, U.S. REE users, and the rest of the world REE refiners. Overall, we find limited support for the view of a wealth transfer in connection with MOFCOM announcements only when disentangling events prior to and post the initiation of the WTO trial, consistent with the trial triggering changes to China's REE policy and recent announcement to abolish quotas. We do find, however, that extreme REE price movements have a first order effect on all companies in the REE industry consistent with recent market trends to enable hedging against REE price volatility.

Journal of Banking & Finance, 2016

Journal of Banking and Finance, Sep 30, 2013

Portfolio optimization with private equity is based on one of three different indices: listed pri... more Portfolio optimization with private equity is based on one of three different indices: listed private equity indices, transaction-based private equity indices, and appraisal value based private equity indices. We show that none of these indices are appropriate for portfolio optimization. We introduce a new benchmark index for buyouts and venture capital. Our benchmark is updated monthly, adjusted for autocorrelation (desmoothing) and available contemporaneously. We show our benchmark enables superior quantitative portfolio optimization.

In this paper, we analyze whether model risk/asset-specific ambiguity is an issue for institution... more In this paper, we analyze whether model risk/asset-specific ambiguity is an issue for institutional investors. For this purpose, we first show how model risk (which turns out to be equivalent to special cases of ambiguity) affects optimal portfolio allocation. Using average portfolio holdings for traditional and alternative asset classes of 119 institutional investors, we then calibrate our model to implicitly

Most monthly return distributions of alternative assets are in general not normally distributed. ... more Most monthly return distributions of alternative assets are in general not normally distributed. Further, some have biases (e.g. survivor ship bias) that distort the risk-return profile. For that reason every portfolio optimization in the mean-variance framework which includes alternative assets with not normally distributed return distributions and/or biases will most likely be sub-optimal since the risk-return is not covered adequately. As a result the biases and higher moments have to be taken into account. For that reason the return series are corrected for biases in a first step. In the next step the empirical return distributions are replaced with two normal distributions to approximate a best-fit distribution to cover the impact of the higher moments. This procedure is known as the mixture of normal method and is widely used in financial applications. In order to build a strategic asset allocation for a mixed asset portfolio traditional investments (stocks and bonds) and the vast majority of alternative investments (asset backed securities, hedge funds, venture capital, private equity (buy out), commodities, and REITs) are considered. Furthermore real investor's preferences are considered in optimization procedure. In order to test the results for stability robustness tests which allow for the time-varying correlation structures of the strategies are applied.

The objective of this paper is to study how contagion works in financial markets by identifying t... more The objective of this paper is to study how contagion works in financial markets by identifying the mechanisms which drive the spill-over of shocks from one market to other markets. To address this question we use open-ended property funds (OPFs) as they offer a unique institutional setting which allows separating between liquidity and information spill-over. We find that that liquidity risk captures the observed discounts very well when the danger of potential future impairments is low. Once the impending NAV impairments become very likely, also this component matters and attributes for a fraction of the total discount.

SSRN Electronic Journal, 2000

... e-mail: Dieter.Kaiser@feri.de. † Endowed Chair of Asset Management, European Business School ... more ... e-mail: Dieter.Kaiser@feri.de. † Endowed Chair of Asset Management, European Business School (EBS), International University Schloß Reichartshausen, Rheingaustr. ... for example, Fung and Hsieh (1997), Fung and Hsieh (1999), Kat and Brooks (2002), Amin ...

SSRN Electronic Journal, 2000

SSRN Electronic Journal, 2000

Retirement planning in general is based on a mean expected portfolio development where risk is me... more Retirement planning in general is based on a mean expected portfolio development where risk is measured by standard deviation only. However, in order to avoid lifetime-ruin, an appropriate financial plan must also be robust to financial shocks with extreme losses and downside risks, such as during the current financial crisis. In this article, we propose a detailed analysis of the problem for different U.S. households (middle-class, upper middle-class, and upper-class) by introducing a new measure for lifetime financial security: the probability of being alive when the financial portfolio falls short (lifetime-ruin probability). Our model considers two degrees of freedom that influence lifetime-ruin probability: 1) a direct variable, the rate of consumption, and 2) an indirect variable, portfolio diversification in listed alternative investments. The complex model that we use here accounts for stochastic total wealth accumulation, including income, consumption, housing, debt, and saving dynamics (after inflation, tax, and transaction costs). We find that the lifetimeruin probability is unacceptably high for all considered households. However, the risk of portfolio ruin can be substantially reduced if a household is willing to decrease living expenses and to further diversify the portfolio with listed alternative investments of 13% to 25%, depending on the household, even after accounting for the financial crisis.

Fabozzi/The Handbook, 2008

This paper presents an initial empirical examination of the effectiveness of various venture qual... more This paper presents an initial empirical examination of the effectiveness of various venture quality attributes that entrepreneurs use to induce (small) investors to commit financial resources in an equity crowdfunding context. We examine the impact of venture quality (in terms of human capital, social (alliance) capital, and intellectual capital), as well as the level of uncertainty, on fundraising success. Our data highlight that retaining equity and providing more detailed information about risks can be interpreted as effective signals and can therefore strongly impact the probability of funding success. Social (alliance) capital and intellectual capital, by contrast, have little or no impact on funding success. We also discuss the implications for successful policy design.

Journal of Business Ethics, 2015

Rare earth elements (REEs) have become increasingly important because of their relative scarcity ... more Rare earth elements (REEs) have become increasingly important because of their relative scarcity and worldwide increasing demand, as well as China's quasi-monopoly of this market. REEs are virtually not substitutable, and they are essential for a variety of hightech products and modern key technologies. This has raised serious concerns that China will misuse its dominant position to set export quotas in order to maximize its own profits at the expense of other rare earth user industries (wealth transfer motive). In fact, export restrictions on REEs were the catalyst for the U.S. to lodge a formal complaint against China in 2012 at the WTO. This paper analyzes possible wealth transfer effects by focusing on export quota announcements (so-called MOFCOM announcements) by China, and the share price reactions of Chinese REE suppliers, U.S. REE users, and the rest of the world REE refiners. Overall, we find limited support for the view of a wealth transfer in connection with MOFCOM announcements only when disentangling events prior to and post the initiation of the WTO trial, consistent with the trial triggering changes to China's REE policy and recent announcement to abolish quotas. We do find, however, that extreme REE price movements have a first order effect on all companies in the REE industry consistent with recent market trends to enable hedging against REE price volatility.

SSRN Electronic Journal, 2000

Seasoned equity offerings (SEOs) typically provide investors with information, or signals, that a... more Seasoned equity offerings (SEOs) typically provide investors with information, or signals, that are stock price relevant. This information, however, is generally intangible, meaning market participants have incomplete knowledge about its quality. Investors thus tend to regard it as ambiguous. To calculate a related ambiguity premium, we use straddle returns to explore the difference between option-implied and realised volatility following SEO events. After controlling for common risk factors, we find significantly positive alphas that can proxy for the ambiguity premium. In line with previous research, we find that the estimated ambiguity premium is positively correlated with firms' fundamental data intangibility, as proxied for by the skewness of stock returns.

SSRN Electronic Journal, 2000

This paper presents an initial empirical examination of which start-up signals will induce small ... more This paper presents an initial empirical examination of which start-up signals will induce small investors to commit financial resources in an equity crowdfunding context. We examine the impact of firms' financial roadmaps (e.g., preplanned exit strategies such as IPOs or acquisitions), external certification (awards, government grants and patents), internal governance (such as board structure), and risk factors (such as amount of equity offered and the presence of disclaimers) on fundraising success. Our data highlight the importance of financial roadmaps and risk factors, as well as internal governance, for successful equity crowdfunding. External certification, by contrast, has little or no impact on success. We also discuss the implications for successful policy design.

SSRN Electronic Journal, 2000

In a reverse merger, a private company merges with a publicly listed (“shell”) company, for the p... more In a reverse merger, a private company merges with a publicly listed (“shell”) company, for the purpose of bringing the private company public. Reverse mergers are thus a non-traditional method of going public. In this paper, we focus on Special Purpose Acquisition Companies (SPACs), which are shells initiated with the sole intent of acquiring a privately held company, rather than “natural shells,” which arise after bankruptcy. The main difference is that the “SPAC” acquires the private company and not vice versa and SPACs’ shareholders are required to vote on the merger. Our objective is to study this voting process and to identify the factors that influence approval probability. We use a detailed, proprietary database of 139 SPACs and their characteristics over the 2003-2008 time period. We find that, despite other economic and statistic factors, SPAC blockholder structure and share market conditions are the most important factors in the approval decision. We find a negative correlation between the presence of active investors (hedge funds and private equity funds) shareholdings in a SPAC and approval probability. In contrast, we find that a higher percentage of SPAC management ownership tends to increase approval probability, because mangers will always vote in favour of the deal. Furthermore, deal approval is also more likely in upward-trending markets, which means that SPACs are prone to “IPO windows,” just as traditional initial public offerings.

Management von Rohstoffrisiken, 2010

ABSTRACT

SSRN Electronic Journal, 2000

Governments around the world spend trillions of dollars on business support programs that are ult... more Governments around the world spend trillions of dollars on business support programs that are ultimately phased out. We explore whether there are corporate governance or corporate finance implications of a phase-out, particularly as it pertains to any misconduct among those that lose the government support. Our setting exploits a unique natural experiment, where we obtain precise difference-indifferences estimates and measure the costs associated with misconduct (but not the loss from the removal of government support). Our data provide very strong support for the idea that there are significant financial costs to investors in companies and/or funds that lose government support.

Corporate Governance: An International Review, 2014

Venture Capital in Europe, 2007

Journal of Asset Management, 2015

SSRN Electronic Journal, 2000

Rare earth elements (REEs) have become increasingly important because of their relative scarcity ... more Rare earth elements (REEs) have become increasingly important because of their relative scarcity and worldwide increasing demand, as well as China's quasi-monopoly of this market. REEs are virtually not substitutable, and they are essential for a variety of hightech products and modern key technologies. This has raised serious concerns that China will misuse its dominant position to set export quotas in order to maximize its own profits at the expense of other rare earth user industries (wealth transfer motive). In fact, export restrictions on REEs were the catalyst for the U.S. to lodge a formal complaint against China in 2012 at the WTO. This paper analyzes possible wealth transfer effects by focusing on export quota announcements (so-called MOFCOM announcements) by China, and the share price reactions of Chinese REE suppliers, U.S. REE users, and the rest of the world REE refiners. Overall, we find limited support for the view of a wealth transfer in connection with MOFCOM announcements only when disentangling events prior to and post the initiation of the WTO trial, consistent with the trial triggering changes to China's REE policy and recent announcement to abolish quotas. We do find, however, that extreme REE price movements have a first order effect on all companies in the REE industry consistent with recent market trends to enable hedging against REE price volatility.

Journal of Banking & Finance, 2016

Journal of Banking and Finance, Sep 30, 2013

Portfolio optimization with private equity is based on one of three different indices: listed pri... more Portfolio optimization with private equity is based on one of three different indices: listed private equity indices, transaction-based private equity indices, and appraisal value based private equity indices. We show that none of these indices are appropriate for portfolio optimization. We introduce a new benchmark index for buyouts and venture capital. Our benchmark is updated monthly, adjusted for autocorrelation (desmoothing) and available contemporaneously. We show our benchmark enables superior quantitative portfolio optimization.

In this paper, we analyze whether model risk/asset-specific ambiguity is an issue for institution... more In this paper, we analyze whether model risk/asset-specific ambiguity is an issue for institutional investors. For this purpose, we first show how model risk (which turns out to be equivalent to special cases of ambiguity) affects optimal portfolio allocation. Using average portfolio holdings for traditional and alternative asset classes of 119 institutional investors, we then calibrate our model to implicitly

Most monthly return distributions of alternative assets are in general not normally distributed. ... more Most monthly return distributions of alternative assets are in general not normally distributed. Further, some have biases (e.g. survivor ship bias) that distort the risk-return profile. For that reason every portfolio optimization in the mean-variance framework which includes alternative assets with not normally distributed return distributions and/or biases will most likely be sub-optimal since the risk-return is not covered adequately. As a result the biases and higher moments have to be taken into account. For that reason the return series are corrected for biases in a first step. In the next step the empirical return distributions are replaced with two normal distributions to approximate a best-fit distribution to cover the impact of the higher moments. This procedure is known as the mixture of normal method and is widely used in financial applications. In order to build a strategic asset allocation for a mixed asset portfolio traditional investments (stocks and bonds) and the vast majority of alternative investments (asset backed securities, hedge funds, venture capital, private equity (buy out), commodities, and REITs) are considered. Furthermore real investor's preferences are considered in optimization procedure. In order to test the results for stability robustness tests which allow for the time-varying correlation structures of the strategies are applied.

The objective of this paper is to study how contagion works in financial markets by identifying t... more The objective of this paper is to study how contagion works in financial markets by identifying the mechanisms which drive the spill-over of shocks from one market to other markets. To address this question we use open-ended property funds (OPFs) as they offer a unique institutional setting which allows separating between liquidity and information spill-over. We find that that liquidity risk captures the observed discounts very well when the danger of potential future impairments is low. Once the impending NAV impairments become very likely, also this component matters and attributes for a fraction of the total discount.

SSRN Electronic Journal, 2000

... e-mail: Dieter.Kaiser@feri.de. † Endowed Chair of Asset Management, European Business School ... more ... e-mail: Dieter.Kaiser@feri.de. † Endowed Chair of Asset Management, European Business School (EBS), International University Schloß Reichartshausen, Rheingaustr. ... for example, Fung and Hsieh (1997), Fung and Hsieh (1999), Kat and Brooks (2002), Amin ...

SSRN Electronic Journal, 2000

SSRN Electronic Journal, 2000

Retirement planning in general is based on a mean expected portfolio development where risk is me... more Retirement planning in general is based on a mean expected portfolio development where risk is measured by standard deviation only. However, in order to avoid lifetime-ruin, an appropriate financial plan must also be robust to financial shocks with extreme losses and downside risks, such as during the current financial crisis. In this article, we propose a detailed analysis of the problem for different U.S. households (middle-class, upper middle-class, and upper-class) by introducing a new measure for lifetime financial security: the probability of being alive when the financial portfolio falls short (lifetime-ruin probability). Our model considers two degrees of freedom that influence lifetime-ruin probability: 1) a direct variable, the rate of consumption, and 2) an indirect variable, portfolio diversification in listed alternative investments. The complex model that we use here accounts for stochastic total wealth accumulation, including income, consumption, housing, debt, and saving dynamics (after inflation, tax, and transaction costs). We find that the lifetimeruin probability is unacceptably high for all considered households. However, the risk of portfolio ruin can be substantially reduced if a household is willing to decrease living expenses and to further diversify the portfolio with listed alternative investments of 13% to 25%, depending on the household, even after accounting for the financial crisis.

Fabozzi/The Handbook, 2008

This paper presents an initial empirical examination of the effectiveness of various venture qual... more This paper presents an initial empirical examination of the effectiveness of various venture quality attributes that entrepreneurs use to induce (small) investors to commit financial resources in an equity crowdfunding context. We examine the impact of venture quality (in terms of human capital, social (alliance) capital, and intellectual capital), as well as the level of uncertainty, on fundraising success. Our data highlight that retaining equity and providing more detailed information about risks can be interpreted as effective signals and can therefore strongly impact the probability of funding success. Social (alliance) capital and intellectual capital, by contrast, have little or no impact on funding success. We also discuss the implications for successful policy design.

Journal of Business Ethics, 2015

Rare earth elements (REEs) have become increasingly important because of their relative scarcity ... more Rare earth elements (REEs) have become increasingly important because of their relative scarcity and worldwide increasing demand, as well as China's quasi-monopoly of this market. REEs are virtually not substitutable, and they are essential for a variety of hightech products and modern key technologies. This has raised serious concerns that China will misuse its dominant position to set export quotas in order to maximize its own profits at the expense of other rare earth user industries (wealth transfer motive). In fact, export restrictions on REEs were the catalyst for the U.S. to lodge a formal complaint against China in 2012 at the WTO. This paper analyzes possible wealth transfer effects by focusing on export quota announcements (so-called MOFCOM announcements) by China, and the share price reactions of Chinese REE suppliers, U.S. REE users, and the rest of the world REE refiners. Overall, we find limited support for the view of a wealth transfer in connection with MOFCOM announcements only when disentangling events prior to and post the initiation of the WTO trial, consistent with the trial triggering changes to China's REE policy and recent announcement to abolish quotas. We do find, however, that extreme REE price movements have a first order effect on all companies in the REE industry consistent with recent market trends to enable hedging against REE price volatility.

SSRN Electronic Journal, 2000

Seasoned equity offerings (SEOs) typically provide investors with information, or signals, that a... more Seasoned equity offerings (SEOs) typically provide investors with information, or signals, that are stock price relevant. This information, however, is generally intangible, meaning market participants have incomplete knowledge about its quality. Investors thus tend to regard it as ambiguous. To calculate a related ambiguity premium, we use straddle returns to explore the difference between option-implied and realised volatility following SEO events. After controlling for common risk factors, we find significantly positive alphas that can proxy for the ambiguity premium. In line with previous research, we find that the estimated ambiguity premium is positively correlated with firms' fundamental data intangibility, as proxied for by the skewness of stock returns.

SSRN Electronic Journal, 2000

This paper presents an initial empirical examination of which start-up signals will induce small ... more This paper presents an initial empirical examination of which start-up signals will induce small investors to commit financial resources in an equity crowdfunding context. We examine the impact of firms' financial roadmaps (e.g., preplanned exit strategies such as IPOs or acquisitions), external certification (awards, government grants and patents), internal governance (such as board structure), and risk factors (such as amount of equity offered and the presence of disclaimers) on fundraising success. Our data highlight the importance of financial roadmaps and risk factors, as well as internal governance, for successful equity crowdfunding. External certification, by contrast, has little or no impact on success. We also discuss the implications for successful policy design.

SSRN Electronic Journal, 2000

In a reverse merger, a private company merges with a publicly listed (“shell”) company, for the p... more In a reverse merger, a private company merges with a publicly listed (“shell”) company, for the purpose of bringing the private company public. Reverse mergers are thus a non-traditional method of going public. In this paper, we focus on Special Purpose Acquisition Companies (SPACs), which are shells initiated with the sole intent of acquiring a privately held company, rather than “natural shells,” which arise after bankruptcy. The main difference is that the “SPAC” acquires the private company and not vice versa and SPACs’ shareholders are required to vote on the merger. Our objective is to study this voting process and to identify the factors that influence approval probability. We use a detailed, proprietary database of 139 SPACs and their characteristics over the 2003-2008 time period. We find that, despite other economic and statistic factors, SPAC blockholder structure and share market conditions are the most important factors in the approval decision. We find a negative correlation between the presence of active investors (hedge funds and private equity funds) shareholdings in a SPAC and approval probability. In contrast, we find that a higher percentage of SPAC management ownership tends to increase approval probability, because mangers will always vote in favour of the deal. Furthermore, deal approval is also more likely in upward-trending markets, which means that SPACs are prone to “IPO windows,” just as traditional initial public offerings.

Management von Rohstoffrisiken, 2010

ABSTRACT