"Open forum on Germany’s banking system"

Conference organized jointly by: Elena Carletti (Center for Financial Studies) Jörg Decressin (International Monetary Fund) Jan Pieter Krahnen (University of Frankfurt and Center for Financial Studies) Christian Ossig (Center for Financial Studies) Conference Reader Nr. 2006/0

Over-allotment options in IPOs on Germany´s Neuer Markt : an empirical investigation

Over-allotment arrangements are nowadays part of almost any initial public offering. The underwriting banks borrow stocks from the previous shareholders to issue more than the initially announced number of shares. This is combined with the option to cover this short position at the issue price. We present empirical evidence on the value of these arrangements to the underwriters of initial public offerings on the Neuer Markt. The over-allotment arrangement is regarded as a portfolio of a long call option and a short position in a forward contract on the stock, which is different from other approaches presented in the literature. Given the economically substantial values for these option-like claims we try to identify benefits to previous shareholders or new investors when the company is using this instrument in the process of going public. Although we carefully control for potential endogeneity problems, we find virtually no evidence for a reduction in underpricing for firms using over-allotment arrangements. Furthermore, we do not find evidence for more pronounced price stabilization activities or better aftermarket performance for firms granting an over-allotment arrangement to the underwriting banks

Initial public offerings and venture capital in Germany

We present a survey on the role of initial public offerings (Epos) and venture capital (VC) in Germany after the Second World War. Between 1945 and 1983 IPOs hardly played a role at all and only a minor role thereafter. In addition, companies that chose an IPO were much older and larger than the average companies going public for the first time in the US or the UK. The level of IPO underpricing in Germany, in contrast, has not been fundamentally different from that in other countries. The picture for venture capital financing is not much different from that provided by IPOs in Germany. For a long time venture capital financing was hardly significant, particularly as a source of early stage financing. The unprecedented boom on the Neuer Markt between 1997 and 2000, when many small venture capital financed firms entered the market, provides a striking contrast to the preceding era. However, by US standards, the levels of both IPO and venture capital activities remained rather low even in this boom phase. The extent to which recent developments will have a lasting impact on the financing of German firms, the level of IPO activity, and venture capital financing, remains to be seen. At the time of writing, activity has come to a near stand still and the Neuer Markt has just been dissolved. The low number of IPOs and the fairly low volume of VC financing in Germany before the introduction of the Neuer Markt are a striking and much debated phenomenon. Understanding the reasons for these apparent peculiarities is vital to understanding the German financial system. The potential explanations that have been put forward range from differentces in mentality to legal and institutional impediments and the availability of alternative sources of financing. Moreover the recent literature discusses how interest groups may have benefited and influenced the situation. These groups include politicians, unions/workers, managers/controlling-owners of established firms as well as banks. Revised version forthcoming in "The German Financial System", edited by Jan P. Krahnen and Reinhard H. Schmidt, Oxford University Press

Earth Potential Electrodes in Permafrost and Tundra

Introduction : During the past two years, the authors installed a number of electrodes in the permafrost and tundra area of Point Barrow to obtain earth potential data. As ground temperatures decreased during the winter, the resistances of the first set of electrodes increased by several orders of magnitude and thus became useless. A second set of electrodes, with sodium chloride incorporated in the fill, proved entirely adequate for recording earth potentials. The installations and procedure for determining electrode resistances are described herein. Electrode resistance data versus time and ground temperatures are also presented.Ye

Nonlinear trends, long-range dependence and climate noise properties of surface temperature

This study investigates the significance of trends of four temperature time series—Central England Temperature (CET), Stockholm, Faraday-Vernadsky, and Alert. First the robustness and accuracy of various trend detection methods are examined: ordinary least squares, robust and generalized linear model regression, Ensemble Empirical Mode Decomposition (EEMD), and wavelets. It is found in tests with surrogate data that these trend detection methods are robust for nonlinear trends, superposed autocorrelated fluctuations, and non-Gaussian fluctuations. An analysis of the four temperature time series reveals evidence of long-range dependence (LRD) and nonlinear warming trends. The significance of these trends is tested against climate noise. Three different methods are used to generate climate noise: (i) a short-range-dependent autoregressive process of first order [AR(1)], (ii) an LRD model, and (iii) phase scrambling. It is found that the ability to distinguish the observed warming trend from stochastic trends depends on the model representing the background climate variability. Strong evidence is found of a significant warming trend at Faraday-Vernadsky that cannot be explained by any of the three null models. The authors find moderate evidence of warming trends for the Stockholm and CET time series that are significant against AR(1) and phase scrambling but not the LRD model. This suggests that the degree of significance of climate trends depends on the null model used to represent intrinsic climate variability. This study highlights that in statistical trend tests, more than just one simple null model of intrinsic climate variability should be used. This allows one to better gauge the degree of confidence to have in the significance of trends

A brief history of long memory: Hurst, Mandelbrot and the road to ARFIMA

Long memory plays an important role in many fields by determining the behaviour and predictability of systems; for instance, climate, hydrology, finance, networks and DNA sequencing. In particular, it is important to test if a process is exhibiting long memory since that impacts the accuracy and confidence with which one may predict future events on the basis of a small amount of historical data. A major force in the development and study of long memory was the late Benoit B. Mandelbrot. Here we discuss the original motivation of the development of long memory and Mandelbrot's influence on this fascinating field. We will also elucidate the sometimes contrasting approaches to long memory in different scientific communitiesComment: 40 page

Initial Public Offerings and Venture Capital in Germany

We present a survey on the role of initial public offerings (IPOs) and venture capital (VC) in Germany after the Second World War. Between 1945 and 1983 IPOs hardly played a role at all and only a minor role thereafter. In addition, companies that chose an IPO were much older and larger than the average companies going public for the first time in the US or the UK. The level of IPO underpricing in Germany, in contrast, has not been fundamentally different from that in other countries. The picture for venture capital financing is not much different from that provided by IPOs in Germany. For a long time venture capital financing was hardly significant, particularly as a source of early stage financing. The unprecedented boom on the Neuer Markt between 1997 and 2000, when many small venture capital financed firms entered the market, provides a striking contrast to the preceding era. However, by US standards, the levels of both IPO and venture capital activities remained rather low even in this boom phase. The extent to which recent developments will have a lasting impact on the financing of German firms, the level of IPO activity, and venture capital financing, remains to be seen. At the time of writing, activity has come to a near stand still and the Neuer Markt has just been dissolved. The low number of IPOs and the fairly low volume of VC financing in Germany before the introduction of the Neuer Markt are a striking and much debated phenomenon. Understanding the reasons for these apparent peculiarities is vital to understanding the German financial system. The potential explanations that have been put forward range from differences in mentality to legal and institutional impediments and the availability of alternative sources of financing. Moreover the recent literature discusses how interest groups may have benefited and influenced the situation. These groups include politicians, unions/workers, managers/controlling-owners of established firms as well as banks.Initial Public Offering (IPO), Venture Capital, Germany

Systematic Physics Constrained Parameter Estimation of Stochastic Differential Equations

A systematic Bayesian framework is developed for physics constrained parameter inference ofstochastic differential equations (SDE) from partial observations. The physical constraints arederived for stochastic climate models but are applicable for many fluid systems. A condition isderived for global stability of stochastic climate models based on energy conservation. Stochasticclimate models are globally stable when a quadratic form, which is related to the cubic nonlinearoperator, is negative definite. A new algorithm for the efficient sampling of such negative definite matrices is developed and also for imputing unobserved data which improve the accuracy of theparameter estimates. The performance of this framework is evaluated on two conceptual climatemodels

Experimental and numerical investigations of underhood flow for vehicle thermal management

Electrified vehicles are an essential part in reducing emissions from the transportation sector. Their development comes with a variety of new challenges. Most of them revolve around the energy efficiency of the vehicles as it directly relates to the range that can be covered with one charge. In the area of vehicle thermal management, this means that the focus shifts from a pure cooling perspective towards providing a thermal environment in which the electric power components can operate most efficiently. As the required amount of cooling air through the front is lower than in conventional combustion vehicles, an additional benefit can be gained from smaller front openings that reduce the aerodynamic drag. However, this requires a deeper knowledge of the flow physics in the underhood environment in order to utilise the available cooling air efficiently. Computational Fluid Dynamics (CFD) is an important tool for the investigation of the underhood flow, since it gives the possibility to look at the flow field even in areas where measurement equipment cannot reach. In the first part of this work, the focus is on the simulation of the axial cooling fan. Different methods to simulate an axial cooling fan were compared to each other and to experimental data that was acquired using Laser-Doppler-Anemometry. The commonly used Multiple Reference Frame approach was shown not to be suitable for investigating underhood flow, as the stationary blades leave an imprint on the wake flow. In addition, inhomogeneous temperature distributions experienced an unphysical rotation due to the switch in reference frame. These issues do not occur with the Rigid Body Motion approach, and the simulation results compared well to the measurements.In the second part of this project, it was investigated how the flow downstream of a fan is affected by different components placed up- and downstream. A simplified underhood rig was designed and constructed to provide a controlled, vehicle-like environment for the measurements and simulations. Two front designs, representative of a hybrid and a battery electric vehicle, were utilised and it could be shown that the upper grille opening that is missing in the battery electric vehicle configuration has a visible impact on the flow field downstream of the fan. Simulating the same configurations in CFD showed some differences to the experimental data. For a second cooling fan, the results were well matched

CFD modelling of axial fans for thermal management applications

Reducing CO2 emissions is one of the key challenges in todays automotive industry. Different strategies to achieve this goal are, for example, to electrify the powertrain and to reduce the aerodynamic drag by reducing the amount of cooling air through the underhood. In order not to sacrifice the cooling performance, a better understanding of the air flow through the underhood compartment is necessary. Computational Fluid Dynamics (CFD) is an important tool for the investigation of the underhood flow, since it gives the possibility to look at the flow field even in areas where measurement equipment cannot reach. This work focusses on the simulation of the main driving factor of underhood flow: the axial cooling fan. In CFD multiple methods of varying complexity are available to simulate the fan rotation. The more computational expensive approach, called the Rigid Body Motion (RBM), physically resolves the rotation, while the less expensive approach, called the Multiple Reference Frame (MRF), rotates the air in proximity to a stationary rotor around the blades. In the first study presented in this thesis, the flow field downstream of an axial fan is investigated for these two methods and in addition, a third hybrid approach is also evaluated. The results are compared to experimental data, which were obtained in the Volvo Cars Model-scale Wind Tunnel by using Laser Doppler Anemometry. In the second study, the interaction between the MRF approach and different upstream and downstream conditions were investigated. For this study, a temperature variation upstream of the rotor is introduced, as well as different geometric obstacles up- and downstream.As a result of the presented investigations it could be confirmed that the RBM approach gives the best representation of the flow field downstream of the fan. The MRF on the other hand showed severe limitations that the users need to be aware of. Especially the rotation of an upstream temperature source, that was found in Paper II, can lead to misleading results of component temperatures. However, when the temperature field is uniformly distributed or of minor importance, the MRF is still the most feasible approach for large applications