Better The Devil You Know Than The Devil You Don’t — Financial Crises between Ambiguity Aversion and Selective Perception

Together with my Ph.D. students David and Sinan, we have written an article for the second edition of the International Conference on European Integration and Sustainable Development. The article will be published in The Central European Review of Economics and Management.

Abstract

During financial crises, market participants are pressurized and presumably prone to emotional biased decisions. We use the Economic Policy Uncertainty Indicator and Dow Jones Industrial Average as well as Nikkei 225 GARCH volatilities to test for ambiguity aversion and selective perception of investors. For most crises, we find a significant link between uncertainty and market volatility. However, with respect to ambiguity aversion, the causality differs between crises indicating that investors may not always be driven by uncertainty. Regarding selective perception, we find significant results for the Dot.Com and subprime crises, but not for the Japanese asset price bubble and the Asian crisis.

Citation

Peter Scholz, David Großmann & Sinan Krueckeberg (2018): Better The Devil You Know Than The Devil You Don’t — Financial Crises between Ambiguity Aversion and Selective Perception. The Central European Review of Economics and Management Vol. 2, No. 1, 155-174. Also available on SSRN.

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Hostile Takeovers: Are Banks Threatened by FinTechs?

Abstract

FinTechs aim to revolutionize the traditional banking sector. However, it is unlikely that they will develop large disruptive potential in Germany. The New Institutional Economics helps to predict in which banking divisions FinTechs are more likely to succeed. If the start-ups are unable to build up customer confidence and to generate real added value, then it seems to be more promising to cooperate with banks than to challenge them.

Citation

Peter Scholz (2018): Hostile Takeovers: Are Banks Threatened by FinTechs? SSRN.

Link to Article

In January 2017, this article has been published with the title “Droht den Banken die
feindliche Übernahme durch FinTechs?” in the German journal Corporate Finance No.
01-02, p. 3-7. It is published on SSRN in English language with authorization of the
publisher.

Zurück in die Zukunft mit dem „Banco-Coin“

Abstract

Drohende Bankenpleiten, negative Zinsen und ungelöste Schuldenkrise: Die europäische Zentralbank hat mit der Stabilisierung unseres Finanzsystems alle Hände voll zu tun. Um eine mögliche Alternative für ein Geldsystem der Zukunft zu finden, lohnt ein Blick auf das Beste aus zwei Welten: die Vergangenheit Hamburgs mit der Mark Banco sowie die Zukunft der Crypto-Währungen.

Citation

  • Sinan Krückeberg & Peter Scholz (2017): Zurück in die Zukunft mit dem „Banco-Coin“. Jahrbuch Finanzplatz Hamburg 2017/2018, S. 56-57.

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Bank Regulation — One Size Does Not Fit All

Abstract

Bank business models show diverse risk characteristics, but these differences are not sufficiently considered in Pillar 1 of the regulatory framework. Even if the business model is analyzed within the European SREP, global Pillar 2 approaches differ and could lead to competitive disadvantages. Using the framework of Miles et al. (2012), we examine a dataset of 115 European banks which is split into retail, wholesale, and trading banks. We show that shifts in funding structure affect business models differently. Consequently, a “one size” approach in Pillar 1 for the regulation of banks does not fit all.

Citation

David Großmann & Peter Scholz (2017): Bank Regulation — One Size Does Not Fit All. Journal of Applied Finance & Banking (7)5, 1-27.

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Droht den Banken die feindliche Übernahme durch FinTechs?

Abstract

FinTechs traten in jüngerer Vergangenheit häufig mit dem Ziel auf, den Bankensektor zu revolutionieren. Disruptives Potenzial dürfte in Deutschland aber nur selten entstehen. Die Neue Institutionenökonomik liefert Hinweise, in welchen Geschäftsbereichen FinTechs der Wettbewerb leichter fallen dürfte und in welchen Marktsegmenten es besonders schwierig werden könnte. Gelingt es den Start-ups nicht, Kundenvertrauen zu erlangen und echten Mehrwert zu bieten, dann sind Kooperationen mit Banken vielversprechender als Alleingänge.

FinTechs aim to revolutionize the traditional banking sector. However, it is unlikely that they will develop large disruptive potential in Germany. The New Institutional Economics helps to predict in which banking divisions FinTechs are more likely to succeed. If the start-ups are unable to build up customer confidence and to generate real added value, then it seems to be more promising to cooperate with banks than to challenge them.

Citation

Peter Scholz (2017): Droht den Banken die feindliche Übernahme durch FinTechs? Corporate Finance Nr. 01-02, S. 3-7.

Link to Article

Tradition verpflichtet — Banking in Hamburg

Abstract

Hamburg präsentierte sich bereits im 17. Jahrhundert als bedeutender Handelsplatz in Europa. Mit der Gründung von Bankhäusern und der Einrichtung von Girokonten entwickelte sich die Hansestadt zum wichtigen Impulsgeber für Finanzdienstleistungen.

Citation

Peter Scholz (2016): Tradition verpflichtet — Banking in Hamburg. Jahrbuch Finanzplatz Hamburg 2016/2017, S. 24-25.

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Managing Position Size Depending On Asset Price Characteristics

Abstract

The application of a technical trading rule requires investors to determine a position size of the trades selected. In order to find an optimal position size, the Kelly criterion is widely suggested, which bets relative fractions from the remaining trading budget. Therefore, the general impact of position sizing on timing strategies and the relation to the Kelly criterion have been analyzed. The introduction of relative position sizing has a major impact on trading results. In contrast to a standard Kelly framework, however, an optimal position size does not exist.

Citation

Peter Scholz (2014): Managing Position Size Depending On Asset Price Characteristics. Journal of Applied Operational Research 6(4), 189-206.

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Performance Analysis of Investment Strategies – Pitfalls and Surprises

Abstract

Active investment strategies are a subject of endless debates. Myriads of studies have been conducted to proof performance potential or to reject previous studies due to flaws or misinterpretations. The presentation will address three specific aspects which often are disregarded when performance is measured. Firstly, we will discuss the role of backtests and show that this instrument — even when used carefully and skilled — may lead to biased and misleading results. Secondly, we give an example that the concepts of performance and forecast power must be strictly distinguished. Finally, we demonstrate that implementation details, while largely neglected, may strongly impact and bias a strategy’s performance.

Citation

Peter Scholz & Ursula Walther (2013): Performance Analysis of Investment Strategies — Pitfalls and Surprises. Lecture Notes in Management Science Vol. 5, 176-180.

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