Andy Koch
McCombs School of Business
University of Texas at Austin

Stefan Ruenzi
Chair of International Finance
University of Mannheim

Laura Starks
McCombs School of Business
University of Texas at Austin

Florian Weigert
Chair of International Finance
University of Mannheim

In this paper we investigate the influence of liquidity commonality and systematic fund flows on the investment strategy and performance of mutual funds. We hypothesize that in time periods of low (high) absolute fund netflows, funds - holding shares with high liquidity commonality - perform better (worse) than funds - holding shares with low liquidity commonality. If the netflows of a fund are only weakly correlated with netflows of other funds, we propose that an optimal strategy is to invest in shares with a high degree of liquidity commonality.

• Koch, A.; Ruenzi, S.; Starks, L.; Weigert, F. (2011). Liquidity Commonality, Systematic Fund Flows and Optimal Mutual Fund Behavior, Working Paper, UT Austin and University of Mannheim

Area: Finance

Software:

• Matlab, Stata

Links:

• http://intfin.bwl.uni-mannheim.de/31.html

Hans-Martin von Gaudecker
Fakultät für VWL, Lehrstuhl für Mikroökonometrie
Universität Mannheim

Gemeinsam mit Arthur van Soest (Tilburg) und Erik Wengstrom (Lund) untersuchen wir den Erklärungsgehalt aus ökonomischen Laborexperimenten geschätzter Präferenzparameter in Haushaltsportefeuillewahlmodellen. Zudem vergleichen wir die Verteilungen solcher Präferenzparameter und der Qualität von Entscheidungen in klassischen Laborexperimenten mit Studenten und in der allgemeinen Bevölkerung.

Area: Economics

Software:

• Python, Fortran, Stata

Links:

• http://www.vwl.uni-mannheim.de/gaudecker/research-preferences.htm

Stefan Ruenzi
Chair of International Finance
University of Mannheim

Florian Weigert
Chair of International Finance
University of Mannheim

Theory suggests that investors holding stocks with high sensitivities to extreme market downside movements demand additional compensation. Standard asset pricing models are unable to capture these extreme dependencies because they rely on the lin- ear correlation as their sole dependence measure. We show that extreme dependence structures in the form of upper and lower tail dependence are as important as linear dependence in explaining the cross-sectional variation of expected stock returns. Con- trolling for market beta, stocks with lower (upper) tail dependence have high (low) average returns. These effects are different from known market anomalies and cannot be explained by size, book-to-market, momentum, coskewness or downside beta.

• Ruenzi, S.; Weigert, F. (2011). Extreme Dependence Structures and the Cross-Section of Expected Stock Returns, Working Paper, University of Mannheim

Area: Finance

Software:

• Matlab, Stata

Links:

• http://intfin.bwl.uni-mannheim.de/31.html

Isabel Ruhmer
Center for Doctoral Studies in Economics (CDSE)
Universität Mannheim

Pia Dovern-Pinger
Center for Doctoral Studies in Economics (CDSE)
Universität Mannheim

The aim of this project is to explore consumer behavior in restaurants. Using discrete choice models, we analyze how menu choice is influenced by certain menu- and situational-specific characteristcs. In particular, we investigate whether in addition to prices also the menu design - namely the ordering and grouping of the dishes - influences consumer choice.

First results indicate that consumers tend to be extremeness averse. While overall demand decreases in prices, individuals do not pick alternatives at the lowest or highest end of the price spectrum. Furthermore, the overall number of dishes displayed under a certain sub-category - such as fish or vegetarian - influences a category's choice probability.

As the dataset consists of all bills of a German specialities restaurant over a period of more than seven years, it comprises a huge variety of choices. In total, the data contain menu choices of more than 88,000 individuals who chose among more than 76 alternatives grouped within 6 different categories. As a consequence, the estimations are computationally heavy and could not have been performed without the BwGRID Cluster.

• Ruhmer, Dovern-Pinger: "Do consumers (really) care about prices? Lessons from a restaurant's menu" - to be finished

Area: Economics

Andras Niedermayer
Fakultaet fuer VWL, Lehrstuhl fuer Mikrooekonomische Theorie
Universität Mannheim

Mechanisms where intermediaries charge a commission fee and have the sellers set the price are widely used in practice e.g. by real estate agents, stock brokers, art galleries, or auction houses. We model competition between intermediaries in a dynamic random matching model, where in every period a buyer, a seller, and an intermediary are randomly matched. In any period, every intermediary has a temporary monopoly and designs an exchange mechanism that maximizes his own expected profits. Traders' valuations for the indivisible good depend on their option value of future trade. The following results obtain. First, we show that the intermediary can achieve the highest possible profit with a fee setting mechanism. Second, we characterize when these fees are linear. Third, fee setting is an equilibrium outcome in a dynamic market. Fourth, when the rematching probability increases or, equivalently, the period length decreases, the equilibrium fees become smaller. Our model is applicable to stock brokers and auction houses as intermediaries. It can further explain several of the stylized facts observed in real estate brokerage, such as the 6 percent fee, the relation between listing price and time on market, inefficient free entry, higher prices for houses owned by brokers, and home owners who bought during a boom asking higher prices. We also provide various extensions.

• Andras Niedermayer; Seminar at University of New South Wales; "Fee Setting Intermediaries: On Real Estate Agents, Stock Brokers, and Auction Houses"; online
• Andras Niedermayer; Seminar at Northwestern University; "Fee Setting Intermediaries: On Real Estate Agents, Stock Brokers, and Auction Houses"; online

Area: Economics

Software:

• Matlab, Fortran

Links:

• http://andras.niedermayer.ch/index.php?page=research

Bernhard Klingen
Abteilung Volkswirtschaftslehre
Universität Mannheim

Mit einer Mehrebenenanalyse wurden die Präferenzen von EU-Bürgern hinsichtlich der Kompetenzverteilung in der europäischen Sicherheitspolitik untersucht. Im Zentrum standen die konkurrierenden Hypothesen, dass die öffentliche Unterstützung für eine EU- bzw. NATO-Zuständigkeit auf eine Nachfrage nach Sicherheit zurückzuführen ist (Riker-Hypothese) oder dass sie maßgeblich von ideologischen Faktoren (Europhilie, Antiamerikanismus etc.) getragen wird. Als Datengrundlage dienten insbesondere die Umfrageergebnisse der Eurobarometer-Studien EB 62.0 und EB 66.1.

• Klingen, Bernhard; "Is Riker Right? -- Explaining Preferences for Common Defence"; SSRN-Working, 12. August 2009; online.
• Klingen, Bernhard; "A Public Choice Perspective on Defense and Alliance Policy"; in Coyne, Christopher J./Mathers, Rachel L. [Hrsg.], The Handbook on the Political Economy of War; Cheltenham: Edward Elgar Press; 2011; Kap. 17, S. 335-55.
• Klingen, Bernhard; Die Politische Ökonomie der Verteidigungs- und Bündnispolitik; Baden-Baden: Nomos-Verlag; 2011.

Area: Politische Ökonomie

Software:

• Stata

Markus Huggenberger
Department of Risk Theory, Portfolio Management and Insurance
Universität Mannheim

Timo Klett
Department of Risk Theory, Portfolio Management and Insurance
Universität Mannheim

We propose and backtest a multivariate Value-at-Risk model for financial returns based on Tukey's g-and-h distribution. This distributional assumption is especially useful if (conditional) asymmetries as well as heavy tails have to be considered and fast random sampling is of importance. To illustrate our methodology, we fit copula GARCH models with g-and-h distributed residuals to three European stock indices and provide results of out-of-sample Value-at-Risk backtests. We find that our g-and-h model outperforms models with less flexible residual distributions and attains similar results as a benchmark model based on Hansen's skewed-t distribution.

Area: Quantitative Finance

Links:

• http://ssrn.com/abstract=1677431

Lisandra Flach
Public Finance and Economic Policy Group
Center for Doctoral Studies in Economics, CDSE
University of Mannheim

This project uses a Brazilian firm-product level data to investigate how firms set export prices across countries and presents evidence that firms use strategies of product differentiation and market segmentation. With trade liberalization and increasing competition in foreign markets, Brazilian firms adapted the quality of their products to more exigent markets and, specially, more productive firms upgraded quality to the rich North countries. First, I show preliminary evidence of firm-product price variation across countries and discuss the different hypotheses that may drive price variation. The empirical analysis supports the hypothesis that firms segment the market and produce different qualities to different countries. Second, I build a model with heterogeneous firms and quality differentiation, in which more productive firms produce higher quality and enter the markets in North and South, while the less productive ones export only to South. With trade liberalization, more productive firms adapt product quality to the North to be able to export and/or to increase exports to the rich North consumers, what is reflected in higher price to the North and higher market segmentation. Third, I test the North/South model using exports to the European Union (North) and to Mercosur (South) over years and a difference-in-difference-in-differences (DDD) strategy, and show that the hypothesis of quality upgrading and market segmentation is confirmed for differentiated goods, but not for homogeneous goods: for differentiated goods, more productive firms segment the market and increase product quality to be able to compete in tougher markets.

The project uses three different datasets of Brazilian firms: (1) the SECEX export data, which contains information on export values and quantities of all Brazilian exporters, by firm, product and destination market; (2) the RAIS employer-employee matched data, with information on worker's characteristics; (3) and the data on foreign ownership from the Brazil's Central Bank.

• Flach, Lisandra. Quality upgrading and price heterogeneity: evidence from Brazilian exporters. Presentations: University of Hohenheim (Dec 2010); University of Tübingen (Jan 2011). Scheduled presentations: University of Tilburg (Feb 2011); University of Mannheim (March 2011); University of Nottingham (April 2011).

Area: Economics

Links:

• https://sites.google.com/site/lisandraflach