Non-Standard Errors

In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty: Non-standard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable, but smaller for better reproducible or higher rated research. Adding peer-review stages reduces NSEs. We further find that this type of uncertainty is underestimated by participants

On the Valuation of Common and Preferred Shares in Germany: New Evidence on the Value of Voting Rights

This paper outlines the special characteristics of preferred shares in Germany, notes that ordinary shares are valued at substantially higher figures, and presents a study of the pricing of both types for 58 German companies 1990-1993. Hypotheses are developed on reasons for the common share premium and an explanatory model is then applied to the data. Larger premiums are associated with higher ownership concentration and lower trading but not to the proportion carrying voting rights or the cumulative preferred dividends in arrears. They are significantly reduced if a family or financial institution is a major shareholder. Where a family is the largest blockholder the premium increases with liquidity but for a financial institution, liquidity reduces the premium. The underlying reasons for this are considered

Was leisten die Kursmakler? | Eine empirische Untersuchung am Beispiel der Frankfurter Wertpapierbörse

What is the Performance of the „Makler"? An Empirical Analysis Based on the Example of the Frankfurt Stock Exchange The present contribution represents a detailed empirical analysis of the role of the specialists („Makler“) operating at the Frankfurt Stock Exchange. The dataset employed permits the impact of specialist activities on liquidity and volatility to be analysed as well as the profitability of the specialists’ transactions to be evaluated. Specialist participation in floor trading is substantial. The trades they make for their own accounts account for over 20 % of the volume in the batched auctions and for over 40 % of the volume in the continuous trading session. It is also shown with regard to the latter that specialist activities visibly help reduce the bid-ask spread. The effective spread ultimately paid is less than one-third of the spread calculated from the orders in the specialist’s limit order book. It is shown that specialist participation in the batched auctions results in reduced volatility. The specialists’ impact on volatility is sometimes evaluated on the basis of the „specialist stabilization ratio“. We argue, however, that this measure does not supply meaningful results. During our sample period specialists did, on average, not earn profits on the trades they made for their own account. Decomposing overall profits shows that positive spread revenues cannot compensate for positioning losses. Overall, our analysis shows that specialists are contributing towards a higher quality of Germany’s stock markets. The implications of these results for the way in which stock trading should be organized in Germany are discussed

Instabile Finanzmärkte

The paradigm of self-stabilizing, equilibrating financial markets, respected for a long time, is seriously challenged by the recent financial crisis. Despite sophisticated bank risk management and comprehensive bank supervision interbank and corporate bond markets collapsed in 2007-2009. The state interventions required for saving banks are without precedent in modern economic history. In this essay we attempt to explain financial market instability. Key determinants of the crisis are, in our opinion, weaknesses of the information architecture which should provide credible information for investors. Three determinants of instability are identified: first, the utilization of debt instruments combined with high degrees of corporate leverage; second, the tradeability of securities combined with increased risk taking; and third, the increased degree of complexity of financial products and networks, combined with more homogeneous asset and risk structures of banks. These determinants strengthen financial system vulnerability and the role of the information architecture. We discuss several requirements for a meaningful regulatory reform, leaving out incentive issues (which are treated in Franke/Krahnen 2009), namely credible provision of information, macro-prudential supervision, robust capital standards, as well as a limitation of risk clustering in derivative markets. Copyright 2009 die Autoren Journal compilation 2009, Verein für Socialpolitik und Blackwell Publishing Ltd.