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Master Thesis Topics Finance & Investments

Table of Contents

Master Thesis topic 1: The Design of Lockup Contracts in IPO Firms in Europe
A lockup contract is an agreement between initial shareholders and the underwriter that prohibits initial shareholders from selling any of their shares of stock for a specific period of time after the IPO. The existence of lockup agreements is to reduce the chance of issuers taking advantage of insider information, allowing more time for outside investors to resolve uncertainty in firm value without the adverse effect of insider selling. However, lockup agreements are much more diverse in Europe than in the U.S. both in terms of the amount and length of equity shares locked up after the IPO. The U.S. lockup agreements are voluntary and mostly standardized towards 180 days while they are frequently mandatory and involved in much longer periods in Europe. Another important feature of lockup agreements is the negative stock price reaction around the lockup expiry date which has been documented by numerous researchers recently. This effect is contradictory to the efficient market hypothesis which advocates that the IPO prospectus should reveal all information pertinent to the determinant of stock price. Most importantly, there are also separate lockup agreements for different categories of initial shareholders within the same firm such as directors and venture capitalists. As directors assume important leadership roles and they are more informed than other shareholders, thus the information asymmetry tends to be higher between directors and outside investors than between venture capitalists and outside investors. However, venture capitalists are repeat investors who have valuable reputation at stake which may limit their conflict of interests with outside investors acquiring shares in the IPO. Outside investors may not purchase shares in the IPO backed by venture capitalists who were previously involved in taking advantage of insider information and reducing the wealth of outsider investors. Besides venture capitalists also use IPO as an exit mechanism to optimally recycle investments and maximize future returns. Hence the length and expiry of directors lockup agreements will convey significantly different information than the length and expiry of venture capitalists lockup agreements. Important Literatures Aggarwal, R., Krigman, L. and Womack, K., 2002, Strategic IPO Underpricing, Information Momentum, and Lockup Expiration Selling. Journal of Financial Economics 66, 105 137. Brav, A. and Gompers, P., 2003, The Role of Lockups in Initial Public Offerings. The Review of Financial Studies 16, 1 29. Cornell, B. and Sirri, E., 1992, The Reaction of Investors and Stock Prices to Insider Trading. The Journal of Finance 47, 1031 1059. Field, L. and Hanka, G., 2001, The Expiration of IPO Share Lockups. The Journal of Finance 56, 471 500.

Gompers, P. and Lerner, J., 1998, Venture Capital Distributions: Short-Run and LongRun Reactions. The Journal of Finance 53, 2161 2183. Lakonishok, J. and Lee, I., 2001, Are Insider Trades Informative. The Review of Financial Studies 14, 79 111. Lin, T. and Smith, R., 1998, Insider Reputation and Selling Decisions: The Unwinding of Venture Capital Investments during Equity IPOs. Journal of Corporate Finance 4, 241 263. Ofek, E. and Richardson, M., 2000, The IPO Lock-Up Period: Implications for Market Efficiency and Downward Sloping Demand Curves. Unpublished working paper, New York University. Ofek, E. and Richardson, M., 2003, DotCom Mania: The Rise and Fall of Internet Stock Prices. The Journal of Finance 53, 1113 1137. Schultz, P., 2008, Downward Sloping Demand Curve, the Supply of Shares, and the Collapse of Internet Stock Prices. The Journal of Finance 63, 351 378.

Master Thesis topic 2: Bank Risk Management

Banks play a crucial role in the economy. They lend to agents who need capitals to finance their long term projects. This lending activity is financed with short term deposits put in their account in exchange of different financial services banks are able to provide. The balance sheets of banks are structured on the asset side with long terms loans funded on the liability side with short term deposits, debts raised on the financial markets (bonds) and on the interbank market, and finally equity provided by shareholders. Banks are also real risk machine. The mismatch between lending long and borrowing short (deposits) exposes them to interest risk. But bank credit portfolio is confronted with different kind of risks among which the risk of non reimbursement or default of the borrower (credit risk) is the most essential nowadays. So screening and monitoring their borrower is an important dimension of their activity and also a source of information asymmetry over the financial market. A loss of confidence can also threaten the sources of bank funding. Massive withdrawals on deposits or freezes of interbank loans can lead the bank to severe liquidity problems and worse to an insolvency situation. Bank equity is therefore the only stable resource which can be used in the different situations of financial disaster. That is why Regulation Authorities (Basel Committee) have progressively enforced the banking system as a whole to hold a minimum capital level. (For more information: see in Different studies can be conducted here: -How do banks adjust their capital ratios? -What is the link between the business cycle and the amount of bank capital (procyclicity effect)? -Why do banks hold capital well in excess of the minimum capital required by the regulation (capital buffer)? Although the first goal of this capital constraint is to ensure the soundness of the bank individually, the recent subprime mortgage crisis has clearly revealed a big drawback. Large losses due to the default on loan reimbursements have lowered dramatically the capital forcing banks to reduce their lending activity. Some interesting issues are: -How do banks adjust their risk-taking behaviour in their loan extension process? -What effect has the use of credit derivatives and/or credit securitization on the bank lending activity? -What is the role of credit securitization on banking risk measured by its equity beta? Some introducing references are: -Allen Berger & Richard Herring & Giorgio Szeg, The role of capital in financial institutions, Journal of banking and finance 1995. -Terhi Jokipii & Alistair Milne, The cyclical behavior of European bank capital buffers, Journal of banking and finance, 32, 2008.

-Leonardo Gambacorta & Paolo Emilio Mistrulli, Bank capital and lending behavior: Empirical evidence for Italy, Banca dItalia research department, February 2003. -Dennis Hnsel & Jan-Peter Krahnen, Does credit securitization reduce bank risk? Evidence from the European CDO market, January 2007, available on: -Joe Peek & Eric Rosengren, Bank regulation and the credit crunch Journal of banking and finance, 19, 1995. -Christina Bannier & Dennis Hnsel, Determinants of banks engagement in loan securitization, August 2007, available on: -Benedikt Goderis & Ian Marsh & Judit Vall Castello & Wolf Wagner, Bank behavior with access to credit risk transfer, Bank of Finland Research, Discussion paper 4/2007.

Master Thesis topic 3: The Ambiguous Role of Credit Ratings

Ratings are tools provided to evaluate the chance investors have of receiving interest and principal repayments on a debt as scheduled in the involved contract issued by the borrower. Three rating agencies Standard & Poors, Moodys and Fitch have developed or improved specific quantitatives models to assess the credit quality of a borrower. Their importance has grown considerably those last years. Since 1980s, in order to keep the soundness of the banking system threatened by several crisis and bankruptcies, official regulatory authorities have stengthened the banking regulation. On a daily basis banks must continuously adjust their capital according to the riskiness of their assets. But since Basel II they are constrained to assess regularly the default risk of their credit portfolio (see on In reaction banks have developed new strategies and financial products in order to alleviate this capital constraint and diversify their lending activity. Credit derivatives and structured products based on securitization mecanism have been widely used in this process. Structured products involves the pooling of assets and the subsequent sale to investors of tranched claims on the cash flows backed by these pools. Each tranche has a specific rating given by one of the three agencies. But the recent subprime crisis have shown the limits and the fragility of a system completely dependent on the rating system.and rating agencies have been widelly criticized. Several researches are proposed here: -Are rating agencies fair in their credit notations? -Is there a cyclical pattern in the credit rating reevaluations? -Are credit ratings foreseeable? -What is the impact of credit ratings on the evaluation of the pricing of debt instruments or on the issuing corporate or on the structured product concerned -What is the effect of multiple ratings on the pricing of the backet instrument?. Some primary references: -Structured finance: Complexity, risk and the use of ratings, Ingo Fender & Jane Mitchell, BIS Quaterly review, June 2005. CDO rating methodology: Some thoughts on model risk and its implications, BIS Working paper N163, November 2004. Corporate governance and rating: Do agencies rate mutual bank bonds fairly? K. Fisher & R. Mahfoudhi, CREFA Working paper July 2002 -The effect or credit ratings on credit default swap spreads and credit spreads, K. Daniels & M. Jensen, The journal of fixed income, December 2005. -The relationship between credit default swap spreads, bond yields and credit rating announcements, J Hull & M Predescu & A. White, Journal of banking and finance 2004. -Do multiple CDO ratings impact credit spreads? S. Morkoetter & S. Westerfeld, Swiss institute of banking and finance University of St Gallen, November 2008. -The role of ratings in structured finance: issues and implications, BIS, January 2005.

Master Thesis topic 4: Mergers and Acquisitions

The vast literature of Mergers and Acquisitions (M&A) deals with issues like the effect of M&A on short/long-run firm performance, the factors for success and failure of M&A, the benefits/losses for the shareholders of the target and/or bidding firm from M&A. The seminal paper of Jensen and Ruback (1983) who conclude that there is evidence that corporate takeovers generate positive gains, that target firm shareholders benefit, and that bidding firm shareholders do not lose and the highly influential article by Roll (1986) who introduces the hubris hypothesis in an attempt to explain some of the empirical findings in this area of research, are just a few excellent examples of this enormous literature. Although many articles are already devoted to this topic, new points of view continue to emerge. In this topic we focus on the effects of and motives for Mergers and Acquisitions. Possible research ideas include (but are certainly not limited to) What are the effects/is the synergy of cross-border M&A deals? Do the empirical findings also hold for non-US data? What is the impact of legislation (for example Sarbanes-Oxley) on the effects of/motives for M&A?

Jensen, M.C., and R.S. Ruback, 1983, The Market for Corporate Control: the Scientific Evidence, Journal of Financial Economics 11, 5-50. Roll, R, 1986, The Hubris Hypothesis of Corporate Takeovers, Journal of Business 59, 197-216.

Master Thesis topic 5: Trading Volume and Asset Prices

Fundamental shocks to the economy drive both the supply and demand of financial assets and their prices. Thus, any asset-pricing model that attempts to establish a structural link between asset prices and underlying economic factors also establishes links between prices and quantities such as trading volume. In fact, asset-pricing models link the joint behavior of prices and quantities with economic fundamentals such as the preferences of investors and the future payoffs of the assets. Therefore, the construction and empirical implementation of any asset-pricing model should involve both price and quantities as its key elements. Even from a purely empirical perspective, the joint behavior of price and quantities reveals more information about the relation between asset prices and economic factors than prices alone. Yet the asset-pricing literature has centered more on prices and much less on quantities. For example, empirical investigations of well-known assetpricing models such as the Capital Asset Pricing Model (CAPM) and its intertemporal extensions (ICAPM) have focused exclusively on prices and returns, completely ignoring the information contained in quantities. This project aims at uncovering valuable information about price dynamics from trading volume. References: See, for example, Lo and Wang (JFE2000), Lo and Wang (JF2006), Cremers and Mei (RFS2008)

Master Thesis topic 6: Liquidity in Asset Markets

Liquidity concerns the ease and cost at which investors can trade assets in the marketplace. Traditionally, most literature on liquidity was in the field of market microstructure, which focuses on the sources of (il)liquidity. In this literature, asymmetric information, inventory costs and market designs can generate limited liquidity. However, liquidity itself can also affect asset prices. It requires little imagination to see that investors typically prefer liquid over otherwise identical illiquid securities. Consequently, the liquid asset will have a higher price and thus a lower expected return. Moreover, if liquidity varies over time, investors will be exposed to liquidity risk. Depending on the sign of the correlation of liquidity innovations with returns, this can amplify or reduce the total risk exposure of an investor. One difficulty about liquidity is that it is hard to measure and has different dimensions. The marginal trading cost and the market depth are both aspects of liquidity. The first is relatively easily measured by the bid-ask spread (but this is not always available, especially in OTC markets), the latter one is typically measured by Amihuds (2002) ILLIQ, which is a reasonable measure of market depth. In this topic students can work on several aspects of liquidity, both on the market microstructure side as well as on the asset pricing side. Possible research questions are: How related are different aspects and measures of liquidity in the cross-section and time series dimension? Is there commonality in liquidity of different asset markets? How much of the small-value premium is due to liquidity? How does individual and market-wide liquidity react to specific events like the Ford/GM downgrade and why? What is the effect of short selling restrictions on liquidity? Are hedgefunds with a lockup period/liquidation lag less liquid and more exposed to liquidity risk? Can liquidity explain pricing differences in stock pairs? What happened to liquidity in the financial crisis and why (possible for several markets)?

Some references: Market Microstructure: Glosten, L. and Milgrom, P., (1985), Bid, Ask, and Transaction Prices in a Specialist Market With Heterogeneously Informed Traders, Journal of Financial Economics 14, 71-100. Kyle, A., (1985), Continuous Auctions and Insider Trading, Econometrica 53, 1315-1335. Roll, R., (1984), A simple Implicit Measure of the Effective Bid - Ask Spread in an Efficient Market, Journal of Finance, 39, 1127-1139. Ho, T. and Stoll, H. (1983), The Dynamics of Dealer Markets under Competition, Journal of Finance, 38, 10531074.

Pricing liquidity: Amihud, Y., and H. Mendelson (1986): Asset pricing and the bid-ask spread, "Journal of Finance, 17, 223-249. Amihud, Y.: 2002, Illiquidity and stock returns: cross-section and time series effects, Journal of Financial Markets 5, 3156. Pastor, L. and Stambaugh, R.: 2003, Liquidity risk and expected stock returns, Journal of Political Economy 111(3), 642685. Acharya, V. and Pedersen, L.: 2005, Asset pricing with liquidity risk, Journal of Financial Economics 77, 375410. Dick-Nielsen, Jens, Feldhtter, Peter and Lando, David, Corporate Bond Liquidity Before and after the Onset of the Subprime Crisis (February, 09 2009). EFA 2009 Bergen Meetings Paper. Note that capturing the intuition of these papers is most important, not being able to follow every technical derivation.

Master Thesis topic 7: The Role of Corporate Governance in Mergers and Acquisitions
There are vast amount of empirical literature documenting that managers conduct bad M&As which destroy shareholder value. For example, Moeller, Schlingemann and Stulz (2005) show shareholder value destruction in a massive scale in the merger wave of late 1990s. Jensen (1986) argues that managers tend to use the firms free cash flow to conduct M&As in order to build their own business empire, at the expense of shareholders. In contrast, Roll (1986) argues that managers conduct bad mergers due to their own hubris bias. A general and very interesting research topic is whether and how corporate governance plays a role in mergers and acquisitions. Can better corporate governance improve the quality of M&As? As there exist a variety of corporate governance mechanisms (such as large shareholder monitoring, corporate board monitoring, and managerial incentive compensation). It will be interesting to investigate the effectiveness of various corporate governance mechanisms in improving M&A performance. For example, possible research ideas include (but certainly are not limited to) Can the existence of large shareholder(s) improve the firms M&A quality? Can an effective board structure improve M&A performance? Can managerial compensation structure affect M&A performance? Does corporate governance play a different role in Europe than in USA or Asia? ......

The research projects in this area will include extensive data gathering and sound econometric analysis. For the first, experience with online data-gathering, as well as data handling in MS Excel and/or comparable software is advised. For the second, a sound knowledge of statistics, with confidence in regression models, is suggested. Proposed software includes Eviews, SAS, R or Matlab (MS Excel or SPSS can serve in certain cases). The project will involve (on a full-time basis): Month 1: Orientation, literature review, formulation of research objective. Write up of Chapter 1. Month 2: Derivation of methodology: leads to thesis proposal. Write up of Chapter 2. Month 3: Data gathering and preliminary analysis. Write up of Chapter 3. Month 4: Quantitative analysis. Month 5: Writing of remaining chapters and submission. End of month 6: Defence

Jensen, M.C., 1986, Agency Cost Of Free Cash Flow, Corporate Finance, and Takeovers, American Economic Review, 76(2): 323-329.

Moeller, S., F. Schlingemann, and R. Stulz, 2005. 'Wealth Destruction on a Massive Scale? A Study of Acquiring-Firm Returns in the Recent Merger Wave', Journal of Finance vol. 60(2): 757-782. Roll, R, 1986, The Hubris Hypothesis of Corporate Takeovers, Journal of Business 59: 197-216.

Master Thesis topic 8: The Risk of Corporate Fraud and Capital Market Consequences
It is well known that investors incur disastrous losses if a firm is detected of committing fraudulent misreporting (e.g., Anron and Worldcom). Extant corporate finance theories also suggest that the incidence of fraud tends to exhibit industry and time-series clustering effects (e.g., Povel, Singh and Winton 2007, Qiu and Slezak 2008). Therefore, it may not be unreasonable for one to perceive the risk of being detected of committing fraudulent misreporting (the risk of detected fraud hereafter) as a systematic risk born by investors. If so, rational investors may require a risk premium for having to bear this risk. A general and very interesting research topic is whether the (perceived) risk of detected fraud increases the cost of capital of a firm, and if yes, by how much. Research in this area will greatly deepen our understanding of the real consequences of corporate fraud. Specifically, Does (perceived) higher risk of detected fraud increase the firms cost of equity? Does (perceived) higher risk of detected fraud affect the firms credit ratings given by the rating agencies, thus increase the firms cost of debt (yield of maturity) in the bond market? Does (perceived) higher risk of detected fraud increase the firms interest rates for bank loans? ... ...

The research projects in this area will include extensive data gathering and sound econometric analysis. For the first, experience with online data-gathering, as well as data handling in MS Excel and/or comparable software is advised. For the second, a sound knowledge of statistics, with confidence in regression models, is suggested. Proposed software includes Eviews, SAS, R or Matlab (MS Excel or SPSS can serve in certain cases). The project will involve (on a full-time basis): Month 1: Orientation, literature review, formulation of research objective. Write up of Chapter 1. Month 2: Derivation of methodology: leads to thesis proposal. Write up of Chapter 2. Month 3: Data gathering and preliminary analysis. Write up of Chapter 3. Month 4: Quantitative analysis. Month 5: Writing of remaining chapters and submission. End of month 6: Defence

Poval, P., R. Singh, and A. Winton, 2007. Booms, Busts, and Fraud. Review of Financial Studies, 20(4): 1219-1254.

Qiu, B. and S.L. Slezak, 2008. The Strategic Interaction between Committing and Detecting Fraudulent Reporting. Working paper, SSRN.

Master Thesis topic 9: Credit Derivatives

The market for credit default swaps (CDS) has been growing dramatically and trading remained relatively liquid even during the on-going crisis (Fitch 2009). The buyer of a CDS has to pay a compensation, called the CDS spread, to the seller who provides insurance against a set of pre-defined default events of the reference entity. The CDS spread represents the cost of hedging against the reference entitys risk of default. The CDS market is focused on issuer default risk and main participants are large banks, insurance companies, and hedge funds. Interestingly, little is known about the informational efficiency of CDS markets. Issues related to information processing are of key importance for the market participants trading motives and the implementation of their strategies (e.g., hedging, active credit portfolio management, arbitrage, and speculation). For example, the impact of corporate news, ratings announcements, earnings announcements or similar events can be studied in more detail. The following topics can be considered to conduct research projects that examine the information processing in CDS markets. Intra-industry contagion in CDS markets Recovery expectations in CDS markets Market-implied default risk expectations: The failure of Lehman Brothers References Callen, J., Livnat, J., Segal, D., 2007. The impact of earnings on the pricing of credit default swaps. Working Paper, February 2007. Fitch Ratings (2009): Global Credit Derivatives Survey: Surprises, Challenges and the Future. August 20, 2009. Jorion, P., Zhang, G. (2007): Good and bad credit contagion: Evidence from credit default swaps. Journal of Financial Economics 84, 860-883. Jorion, P., Zhang, G. (2009): Credit Contagion from Counterparty Risk. Journal of Finance, scheduled for publication in October 2009. Knaup, M., Wagner, W. (2009): A Market-Based Measure of Credit Quality and Banks' Performance during the Subprime Crisis. European Banking Center Discussion Paper No. 2009-06S. Norden (2008): Credit Derivatives, Corporate News, and Credit Ratings, WFA 2009 San Diego Meetings Paper. Uhrig-Homburg, M., Schlfer, T. (2009): Estimating Market-implied Recovery Rates from Credit Default Swap Premia. University of Karlsruhe, Working Paper, May 2009.

Master Thesis topic 10: Bank-Borrower Relationships

Bank loans represent the main source of external funding for companies and consumers in many countries. The empirical banking research has documented that banks make use of different lending technologies to extend loans to their customers. These lending modes can be classified in arms length lending and relationship lending. The existing studies have addressed some of the benefits and costs associated with different lending modes. However, there are still many open empirical questions that matter for banks, borrowers, and from a macroeconomic perspective. It is particularly interesting to investigate these questions in the context of the on-going financial crisis that started in August 2007. The topics may also be differentiated by bank, borrower and country characteristics. Several studies can be conducted to address the following questions: Bank lending behavior and macroeconomic conditions, especially the impact of unemployment and labour market conditions Has bank lending to firms changed during the crisis? What happened to credit availability and lending terms? How is default risk considered in foreign currency lending? Are there differences in the pricing of foreign currency denominated bank loans and bonds of the same borrower? What are the determinants of stopping, switching, and replacing bank relationships? Why do firms and/or consumers default? What determines the bank behavior before/at/after borrower default? When do banks assist their borrowers and when do they pull the plug? References Berger, A., Udell, G. (2006): A more complete conceptual framework for SME finance, Journal of Banking and Finance 30, 2945-2966. Bharath, S., Dahiya, S., Saunders, A., Srinivasan, A. (2008): Lending relationships and loan contract terms, forthcoming Review of Financial Studies. Boot, A. (2000): Relationship Banking: What do we know? Journal of Financial Intermediation 9, 7-25. Brown, M., Ongena, S., Yesin, P. (2009): Foreign Currency Borrowing by Small Firms, Working Paper, Tilburg University. Davydenko, S., Franks, J. (2007): Do Bankruptcy Codes Matter? A Study of Defaults in France, Germany, and the U.K. Journal of Finance 63, 565-608. Ioannidou, V., Ongena, S. (2007): Time for a change: Loan Conditions and Bank Behavior when Firms Switch, Working paper, Tilburg University. Jacobson, T., Kindell, R., Linde, J., Roszbach, K. (2009): Firm Default and Aggregate Fluctuations, CEPR Discussion Paper No. DP7083. Norden, L., Weber, M. (2008): Credit Line Usage, Checking Account Activity, and Default Risk of Bank Borrowers, AFA 2008 New Orleans Meetings Paper. Rosenfeld, C. (2006): The Effect of Banking Relationships on the Future of Financially Distressed Firms, Working Paper.

Master Thesis topic 11: The Impact of CEO Personal Characteristics on Corporate Finance Decisions
A relatively new stream of research in the corporate finance literature is about the impact of CEOs personal characteristics on financial decisions. According to Bertrand and Schoar (2003), managers characteristics play an important role in their decisions in the areas of investment, financial and organizational practices. In their survey of behavioral corporate finance literature, Baker, Ruback, and Wurgler (2004) conclude that there are very few behavioral finance studies that examine the CEOs perspective. Rather, most such studies focus mainly on investments and financing decisions. Examples of these studies are Heaton (2002) and Malmendier and Tate (2005, 2008), and Xuan (2009). The topic of this thesis is about the impact of CEOs personal characteristics on their corporate decisions. One possibility would be to consider a CEOs industry working experience or geographical experience. Another possibility is whether they show persistent behavior when working for another firm. Other suggestions are welcome as well. Baker, M., Ruback, R., Wurgler, J., 2004. Behavioral corporate finance. In: Eckbo, B. E. (Eds.), Handbook in corporate finance: Empirical corporate finance. Bertrand, M., Schoar, A., 2003. Managing with style: The effect of managers on firm policies. The Quarterly Journal of Economics 143, 1169-1208. Heaton, J., 2002. Managerial optimism and corporate finance. Financial Management 32, 33-45. Malmendier, U., Tate, G., 2005a. CEO overconfidence and corporate investment. The Journal of Finance 60, 2661-2700. Malmendier, U., Tate, G., 2008. Who makes acquisitions? CEO overconfidence and the markets reaction. Journal of Financial Economics 89, 20-43. Xuan, Y., 2009. Empire-building or bridge-building? Evidence from new CEOs internal capital allocation decisions. Review of Financial Studies, Forthcoming.

Master Thesis topic 12: Corporate finance and governance of Dutch firms in the 20th century
Many studies of corporate decisions focus on recent periods. The corporate decisions include capital structure choice, dividend policy, governance structures and mergers and acquisitions. In the Netherlands many studies have been carried out on these topics for periods starting in the 1980s. In these studies cross-sectional analyses are performed to explain capital structure choice, dividend policy, governance structures and mergers and acquisitions. Alternatively these studies measure the effects of corporate decisions on firm performance. History can add fascinating dimensions in research on corporate decision-making. First, data over longer time periods allows a study of long term corporate policies of firms. For example, why do some firms have stable dividends while other firms exhibit fluctuating dividends? Or: do long term capital structures move towards optimal ratios? Second: in historical research by nature the institutional setting changes over time. Examples are tax rules, company law and societal perceptions of good governance. These changes make it, for example, interesting to study the relation between the use of takeover defenses in firms and the development of company law. In the Netherlands, since 1903, a yearly guide is issued with information about all Dutch exchange-listed companies: Van Oss Effectengids. This guide includes a balance sheet, profit and loss statement, debt and equity issues, dividends, board members, takeover defenses and important news such as mergers and bankruptcies. The topic requires understanding of Dutch. Examples of studies that can be carried out answer questions like: - What was the impact on takeover defenses of the company law reforms in the 1920s, 1960s and 1970s? - What is the representation of board members of banks on boards of non-financial companies? How do bankers on the board influence capital structure choice? - Why do some firms have stable dividends while other firms exhibit fluctuating dividends? - Do mergers influence long-term performance, short-term performance, or both? - Do takeover defenses work? Are firms with takeover defenses less likely to be taken over? An international initiative in this field is A history of corporate ownership around the world: Family business groups to professional managers, Randall Morck (Ed.), Especially Morcks introduction contains many useful ideas. The paper by De Jong and Rell describes existing literature for the Netherlands and the data in Van Oss Effectengids.

Master Thesis topic 13: The Governance of Banks

The governance of financial institutions is currently the topic of a broad debate in the institutions, legislators and society at large. The current crisis has uncovered the weaknesses of present governance systems, as well as the major consequences on the real economy. The topic of this item - corporate governance in financial institutions - intends to evoke discussion about the antecedents and evolution of the management, control, ownership and regulation in financial corporations. In particular, the topic can focus on four topics: - Models of corporate governance: the European or Anglo-Saxon model? Do specific models of governance perform better than other models? Can we observe convergence in governance models? - Governance mechanisms in financial institutions: ownership. What are optimal ownership structures for banks and insurance firms? Does ownership influence performance? - Governance mechanisms in financial institutions: boards. What are optimal board structures (size, independence, experience) for banks and insurance firms? Does board structure influence performance? - Regulation and legislation of governance. What is the role of governments in the governance of banks and other financials. How do governments operate as shareholders and board members? Literature. Many interesting papers are currently written. See for the newest insights: E.g. Fahlenbrach & Stulz, 2009, Bank CEO Incentives and the Credit Crisis,

Master Thesis topic 14: Asset pricing and the economic risk factors
Different financial assets have different returns and these differences can be large. For example, investors appear to require a lower return on average for investing in growth firms (7% per annum) when compared to value firms (14% pa), and a higher return for investing in futures contracts on crude oil (10% pa) versus even negative return for futures on sugar (-10% pa). So the question is why investors require different returns for different assets or securities? Can we model or even predict these returns? And if yes, can investors earn profits by predicting future performance of the assets? Finance theory offers some explanations. For example assets will have higher expected returns when they are riskier, when they deliver low returns in bad states of the economy. Rational risk averse investors will need to be compensated by means of higher expected returns for holding such undesired assets. On the contrary, investors desire assets that deliver high payoffs in the bad states of the economy and such assets will have lower expected returns or risk premiums. This is a broad area for research within which students are encouraged to choose more specific topics. The list with example topics is included however own topics are highly appreciated: Asset pricing: How can we identify these good and bad states of the economy? How can we model (predict) expected returns? What is the nature of macroeconomic risk that drives risk premium in asset markets? Who is more responsive to changes in economic conditions: consumers or producers (consumption-based versus production-based asset pricing)? Theoretical and empirical evaluation of the eg. The Fama-French-Carhart extension of the CAPM. Investments The economic value of predicting asset returns: can an active portfolio management be profitable (in the efficient market)? Should investors hold domestic assets only or diversify internationally? Do investors hold an internationally diversified portfolio: who, why and where goes abroad or stays at home (home bias)? How to deal with currency risk in an internationally diversified portfolio?

Master Thesis topic 15: Greener Pastures for Investing: the Case of Emerging Markets
The dramatic expansion of the international stock markets of Asia, South America, Africa, the Middle East, and Eastern Europe creates increasingly important opportunities for global investors in search of better diversification and more attractive risk-return tradeoffs. Many unique features of these emerging stock markets separate them from their more developed counterparts such as U.S., U.K., and Japan. Historically, stock returns in these markets have a low correlation with developed market returns. As such, the high volatility of emerging stock markets is dampened in a global portfolio While interests in emerging markets from both academia and investment community have intensified, many important questions remain inadequately answered or unexplored. For example, the correlation between emerging market returns and the US market return tends to vary over different market conditions. In bull markets, the correlation is low and the allocation to emerging markets increases the global portfolios returns with little effects on its risk. However, recent evidence shows that the US market downturns tend to be associated with strong co-movements in emerging markets. The result is, therefore, that adding a small emerging markets allocation to a global portfolio tends to slightly reduce its return and increase its risk during US bear market. Other potential topics include the contagion of emerging market crisis or the liquidity in emerging markets. A glaring example is the 1997 Asian finance crisis, which quickly spread all over the world through the Russian Debt crisis in 1998, and then the collapse of LTCM in 1998, a giant hedge fund in the United States. How should we manage portfolios in emerging markets in this dynamic world? Lets explore it in your master theses.

Master Thesis topic 16: Understanding the global financial crisis: causes, real consequences, and lessons
The financial turmoil in 2007 and 2008 have a significant impact on the workings of financial markets and the architecture of financial institutions around the world. Despite the common attribution of the crisis to declining housing prices, enhanced leverage of the banking system, and the large exposure of financial institutions to mortgages through structured investment vehicles such as Collateralized Debt Obligations and Credit Default Swaps, it remains a puzzle why financial markets around the globe and across various seemingly unrelated asset classes exhibit strong repercussions at roughly the same time (See the Figure below). As the tide of the financial crisis starts to ebb through time, it becomes increasingly important to understand the effects of financial crisis not only on the financial sector but also on the real sector of the economy. One important channel for the effect of crisis to spread to nonfinancial corporations is the availability of credit. A recent survey of 1,050 CFOs around the world finds that the financial crisis has led credit constrained firms to deeply cut their expenditures on the R&D projects, employment, and capital spending. It would interesting to assess how deep and widespread the impact on real sectors is. Naturally, the occurrence of the current financial crisis has long-lasting implications for financial regulators and central banks. Do we need tighter financial regulations and more active monetary policy maneuvered by central banks to prevent the occurrence of or to counter the development of financial crises? Detailed analyses of the role played these visible hands during the periods of the crisis would be helpful to answer these important questions.

World wide stock markets over the past two years

Source: Yahoo Finance

Master Thesis topic 17: The firms financial advisor selection with corporate finance decisions
The added value of financial advisors to acquiring firms can be threefold (Servaes and Zenner, 1996). First, financial advisors can reduce the transaction costs to acquiring firms. In particular, they can identify targets, value targets and create a bid at a lower cost than individual firms. Second, they can reduce asymmetric information between the target and acquirer. Third, financial advisors can reduce contracting costs. They act as a monitor, since their reputation depends on the quality of their advice. When selecting a financial advisor, empirical results indicate that transaction costs are the main determinants, followed by contracting costs and asymmetric information. Banks that function both as lender and as financial advisor can provide certification services, as these banks have private information about their client, which they can use in their advisory role (Allen, Jagtiani, Persistiani, and Sauders, 2004). However, conflicts of interest can arise if a firm believes that the bank is likely to reveal information that would be of interest to competitors or potential acquirers. We propose several directions for empirical research: o In studies about advisor selection, most authors exclude financial firms from their analysis. Since financial advisors mostly belong to financial firms, it would be interesting to examine how financial firms select their financial advisor. (Consider the case of ABN AMRO and Anton Veneta) o Is there a conflict of interest between clients and their financial advisors that previously acted as another type of advisor? (e.g, equity issues, debt issues, divestitures, advisor of the target, advisor of acquirer etc). o According to the Servaes and Zenner (1996), advisors can provide services at a lower cost than individual firms, due to their extensive experience in advising M&A deals. What type of experience would be important and when? E.g., industry- or country-specific experience. What would be the value implications? Servaes and Zenner (1996), The role of investment banks in acquisitions, The Review of Financial Studies, Vol. 9, p. 787 815 Allen, Jagtiani, Persistiani, and Sauders (2004), The role of banks advisors in mergers and acquisitions, Journal of Money, Credit, and Banking, Vol. 36, p.197 - 224

Master Thesis topic 18: Residential Mortgage lending

Content Things were hectic on the housing and mortgage markets in the last two decades. Although the time and depth of the cycles differed from one European country to another, mortgage markets have grown in size, expanded in product variation and improved borrowers accessibility to mortgage credit. During the last two decades outstanding mortgage debt has tripled; nowadays, outstanding mortgage debt across Europe is 6.1 trillion. Mortgage take-up on a household level reflects those cross-country differences. The major drivers of these developments were, of course, a prosperous economy during the 1990s and early 2000s, leading to a significant increase in household income coupled with low mortgage interest rates. These conditions led to higher demand for property at increased prices. Since the vast majority of households need a mortgage to finance their property, increased housing demand let to a similar growth in mortgage demand; a demand that was generous facilitated by the mortgage industry. The fall of US housing and mortgage markets in 2007/8 has yet given another dimension towards the integration of international markets and of the necessity to rethink retail mortgage lending practices. This broad topic aimed is to explore the multiple relationship between mortgage and housing markets. Students are encouraged to come up with their own specific topics; what follows are just some examples: Instability and interdependence of (national) housing and (international) capital markets. The pros and cons of different modes of mortgage funding (MBS versus bonds/savings) Redefining of the relationship between consumers and lenders ( i.e. responsible lending initiatives) Required skills This thesis project will require a strong background in financial economics and a thorough understanding (or interest) in statistical modeling techniques (e.g. causality testing and VAR modeling). Further, the usual ones: motivation; familiar with Excel; good writing and analytical skills. References Maclennan, D., Muellbauer, J. and Stephens, M. (1998), Asymmetries in Housing and Financial Market Institutions and EMU, Oxford Review of Economic Policy, 14, 54-80. Miles, D. and Pillonca, V. (2008), Financial Innovation and European Housing and Mortgage Markets, Oxford Review of Economic Policy, 24, 1, 145-175. Green, R.K. and Wachter, S.M. (2005), The American Mortgage in Historical and International Context, Journal of Economic Perspectives, 19, 93-114.

Master Thesis topic 19: Private equity

Private equity has known a long history but it has been until the 1980s before it developed into a key source of financing for companies. Private equity refers to the investment in companies that are not traded on the stock exchange. Private equity is used for growth financing, the financing of a buyout of (a division of) a company, taking public firms private (going-private transactions), turnaround financing of financially distressed firms and the financing of young start-up companies (venture capital). In exchange for its investment the private equity investor receives shares in the company. Over the past two decades, private equity and venture capital have played an increasingly important role in the European economy. The value of European private equity investments has increased from 2.4 billion in 1985 to 71.1 billion in 2006. In the Netherlands a similar picture emerges. Private equity investments in the Netherlands have grown from 111.4 million in 1985 to almost 2.4 billion in 2006. The economic impact of private equity is significant. A study of the Nederlandse Vereniging voor Participatiemaatschappijen (NVP) claims that Dutch companies that are backed by private equity investors generate aggregate sales equal to 66.5 billion which constitutes nearly 15 perent of the Gross Domestic Product (GDP) of the Netherlands. These companies employ 400,000 people which is eight percent of total Dutch employment in the private sector. Today private equity is in the news because of the mega buyouts of listed companies. In the Netherlands examples include VNU and VendexKBB. These going-private transactions are typically motivated by the perceived undervaluation of the firms shares on the stock market. This undervaluation limits managements ability to use the benefits available to public companies such as the accessibility of funds required to finance projects or acquisitions. Private equity assists management to take their company from the stock market and provides the necessary funds to finance projects or acquisitions. However, private equity also includes financing entrepreneurial firms (venture capital). These entrepreneurial firms typically do not have a track record and face difficulty obtaining bank loans given their lack of collateral. They therefore rely mostly on outside equity to finance the early and expansion stages of their development. Investing in these young, start-up companies is important since it can lead to innovative new products and contribute to economic growth and job creation. For example, Apple Computers, Microsoft and Google received venture capital in their early stages of development which has helped these companies to grow further.

Master Thesis topic 20: Professional asset management (mutual funds, hedge funds, pension funds)
Both individual and institutional investors, like insurers and pension funds, extensively use professional money managers. Worldwide, enormous amounts of money are invested in mutual funds or hedge funds. In a recent report, the Investment Company Institute estimates the assets under management to exceed $7 trillion in US mutual funds alone (ICI, 2004). From an academic perspective, assessing the performance of these investment vehicles is an important test of market efficiency. Persistence patterns in fund performance (i.e. the observation that some professional fund manager systematically outperform others, including passively managed index funds) would be inconsistent with the semi-strong form of the Efficient Market Hypothesis. One of the most authoritative papers in this stream of literature is that of Hendricks et al. (1993). In this study, the authors report that mutual funds that performed well over the past period, tend to do so in the near future, and vice versa. While Elton et al. (1996) come to similar findings, Carhart (1997) demonstrates that almost all of this predictability is explained by exposures to common risk factors. After correcting for these risk factors, practically all persistence disappears. Nonetheless, Bollen and Busse (2005) do find persistence in fund performance beyond over shorter periods of time. Their results suggest that a short measurement horizon provides a more precise method of identifying future top performing funds. Even though empirical evidence does no appear to unambiguously indicate that some fund managers are able to generate superior performance, investors appear to chase past winners (e.g. see Sirri and Tufano, 1998). While past winning funds are rewarded with large cash inflows, losers are not equally penalized with cash outflows. Studies by among Gruber (1996) and Zheng (1999) report a smart money effect; the authors find that funds that receive more money subsequently perform better than those that lose money. Wermers (2003) also concludes that money is smart in chasing winners, but argues that this effect might be a self-fulfilling prophesy. On the other hand, some authors argue that fund managers exploit return chasing behavior to maximize assets under management. For example, Brown et al. (1996) find that halfway each calendar year, losing fund managers tend to take more portfolio risk to increase the probability to end the year among the winning funds. On the other hand, winning fund managers seem to lock-in performance when they are ahead. Brown et al (2001) document similar behavior when they investigate this tournament-behavior among CTAs (commodity trading advisors) and hedge funds. Cooper et al (2004) provide even more striking evidence of seemingly irrational behavior by mutual fund investors when allocating assets across mutual funds. They find that cash flows to funds increase dramatically when funds change their names to look more like the current hot return styles. In fact, this relationship even seems to hold for the funds whose holdings after the name change do not materially reflect the style implied by their new name, and is the strongest among funds with the greatest increases in marketing expenditures (and ironically the lowest subsequent performance). The academic literature on mutual funds and hedge funds is fairly large and increasing. For more information, you might consider the books by Haslem (2003) and

Lhabitant (2004). Recent academic work can also be found at Within this master thesis topic, alternative thesis topics can be derived, mostly relating to the performance of professionally managed investment vehicles, money flows, fees, and the behavior of fund managers and investors. (For example, by investigating several issues for a particular subset of funds.) Extensive data sets on mutual funds (CRSP) and hedge funds (TASS) are available at the department, although for some topics additional data may have to be collected. Each thesis project involves (i) a comprehensive literature review, (ii) (manual) data collection and manipulation, (iii) and empirical analysis using techniques from the literature. Accordingly, thesis topics are mostly targeted at students with strong quantitative skills, a well-developed background in financial management, and a fluent in English. Relevant references J. B. Berk and R. C. Green. Mutual fund Flows and performance in rational markets. Journal of Political Economy, 112:1269-1295, 2004. N. Bollen and J. Busse. On the timing ability of mutual fund managers. The Journal of Finance, 56:1075-1094, 2001. N. P. Bollen and J. A. Busse. Short-term persistence in mutual fund performance. The Review of Financial Studies, forthcoming, 2005. S. Brown and W. Goetzmann. Performance persistence. The Journal of Finance, 50:679698, 1995. S. J. Brown, W. Goetzmann, and W. N. Park. Careers and survival: competition and risk in the hedge fund and CTA industry. The Journal of Finance, 5:1869-1886, 2001. S. J. Brown, W. Goetzmann, R. G. Ibbotson, and S. A. Ross. Survivorship bias in performance studies. The Review of Financial Studies, 5:553-580, 1992. K. C. Brown, W. V. Harlow, L.T. Starks. Of Tournaments and temptations: an analysis of managerial incentives in the mutual fund industry. The Journal of Finance , 51: 85-110, 1996. J. Busse. Volatility timing in mutual funds: Evidence from daily returns. The Review of Financial Studies, 12:1009-1041, 1999. M. Carhart. On persistence in mutual fund performance. The Journal of Finance, 52:5782, 1997. G. Conner, and M. Woo. An Introduction to Hedge Funds, working paper, London School of Economics, 2003. M. Carhart, R. Kaniel, D. Musto, and A. Reed. Leaning for the tape: Evidence of gaming behavior in equity mutual funds. The Journal of Finance, 57:661-693, 2002.

M. Cooper and H. Gulen. Changing names with style: Mutual fund name changes and their effects on fund flows. The Journal of Finance, forthcoming, 2005. E. J. Elton, M. J. Gruber, and C. R. Blake. The persistence of risk-adjusted mutual fund performance. The Journal of Business, 69:133-157, 1996. E. J. Elton, M. J. Gruber, and C. R. Blake. A first look at the accuracy of the CRSP mutual fund database and a comparison of the CRSP and Morningstar mutual fund databases. The Journal of Finance, 56:2415-2429, 2001. E. J. Elton, M. J. Gruber, S. Das, and M. Illavka. Efficiency with costly information: A reinterpretation of evidence from managed portfolios. The Review of Financial Studies, 6:1-22, 1993. W. E. Ferson and R. W. Schadt. Measuring fund strategy and performance in changing economic conditions. The Journal of Finance, 51:425-461, 1996. W. N. Goetzman and R. G. Ibbotson. Do winners repeat? Journal of Portfolio Management, 20:9-18, 1994. M. J. Gruber. Another puzzle: The growth in actively managed mutual funds. The Journal of Finance, 51:783-810, 1996. J.A. Haslem, 2003, Mutual Funds. Risk and Performance Analysis for Decision Making, Blackwell Publishing. D. Hendricks, J. Patel, and R. Zeckhauser. Hot hands in mutual funds: Short-run persistence of relative performance, 1974-1988. The Journal of Finance , 48:93-130, 1993. D. Hendricks, J. Patel, and R. Zeckhauser. The j-shape of performance persistence given survivorship bias. The Review of Economics and Statistics, 79:161-166, 1997. F.-S. Lhabitant, 2004, Hedge Funds. Quantitative Insights, John Wiley and Sons. B. Malkiel. Returns from investing in equity fund 1971 to 1991. The Journal of Finance, 50:549-572, 1995. E. R. Sirri and P. Tufano. Costly search and mutual fund Flows. The Journal of Finance, 53:1589-1622, 1998. R. Wermers. Is money really smart? New evidence on the relation between mutual fund flows, manager behavior, and performance persistence. Working paper University of Maryland, 2003. L. Zheng. Is money smart? A study of mutual fund investors selection ability. The Journal of Finance, 54:901-933, 1999.

Master Thesis topic 21: Banking Beyond the Too Big to Fail Hypothesis
For many decades the too big to fail hypothesis has assumed that very large banks would never go bankrupt simply because the impact on an economy would be too big. The idea was that if a very large bank would enter into financial distress, there would always be a government safety net. Over the past years, we have witnessed that bank size is not necessarily a guarantee for survival or good performance. In this MSc thesis topic you are encouraged to analyse modern banking practices that apparently work different than we have thought for many decades. Does internationalisation add value to banks? Even though many studies try to explain the internationalisation of banks, but the evidence on the impact of internationalisation on performance remains mixed (e.g., Amel, Panetta & Salleo, 2004; Amihud, DeLong & Saunders, 2002; Berger, 2007; Berger & DeYoung, 2001; Berger, DeYoung & Udell, 2001; Miller & Parkhe, 2002; Molyneux & Seth, 1998; Peek, Rosengren & Kasirye, 1999; Seth, Song & Pettit, 2002; Wan, Yiu, Hoskisson & Kim, 2008). You may investigate the impact of internationalisation on performance at the corporate level, the stockholder level, or the bondholder level. Are stockholders able to correctly price stocks of complex organisations as banks? Many studies suggest that due to functional diversification, geographic diversification, the trade in complex products, etc., stockholders have difficulty properly valuing bank assets due to their opaqueness (e.g., Amel et al., 2004; DeLong & DeYoung, 2007; Flannery et al., 2004). Do bondholders prefer large banks over smaller ones? To some extent, one could argue that more (domestic) assets serve as more collateral for the bondholders, and increases in the asset base should thus lead to lower bond yield spreads (everything else equal). Yet, also for bondholders the increased organisational complexity could be associated with more opaqueness or increased risk (e.g., Warga & Welch, 1993), and hence less precise pricing. See e.g., Laeven & Levine (2007); Ongena & Penas (2009); Penas & Unal (2004). The above questions are only meant as an example. You are encouraged to define your own research. Many alternative themes are allowed, but you must define a fundamental theme for which you design your own problem statement. References Amel, D., Barnes, C., Panetta, F., & Salleo, C. 2004. Consolidation and efficiency in the financial sector: A review of the international evidence. Journal of Banking & Finance, 28(10): 2493-2519. Amihud, Y., DeLong, G., & Saunders, A. 2002. The effects of cross-border bank mergers on bank risk and value. Journal of International Money and Finance, 21(6): 857-77. Berger, A.N. 2007. International comparisons of banking efficiency. Financial Markets, Institutions & Instruments, 16(3): 119-44. Berger, A.N., Buch, C.M., DeLong, G., & DeYoung, R. 2004. Exporting financial institutions management via foreign direct investment mergers and acquisitions. Journal of International Money and Finance, 23(3): 333-66.

Berger, A.N., & DeYoung, R. 2001. The effects of geographic expansion on bank efficiency. Journal of Financial Services Research, 19(2-3): 163-84. Berger, A.N., DeYoung, R., & Udell, G.F. 2001. Efficiency barriers to the consolidation of the European financial services industry. European Financial Management, 7(1): 117-30. Flannery, M.J., Kwan, S.H., & Nimalendran, M. 2004. Market evidence on the opaqueness of banking firms assets. Journal of Financial Economics, 71(3): 419-60. Laeven, L., & Levine, R. 2007. Is there a diversification discount in financial conglomerates? Journal of Financial Economics, 85(2): 331-67. Miller, S.R., & Parkhe, A. 2002. Is there a liability of foreignness in global banking? An empirical test of banks X-efficiency. Strategic Management Journal, 23(1): 55-75. Molyneux, P. & Seth, R. 1998. Foreign banks, profits and commercial credit extension in the United States. Applied Financial Economics, 8(5): 533-9. Ongena, S., & Penas, M.F. 2009. Bondholders wealth effects in domestic and crossborder bank mergers. Journal of Financial Stability, forthcoming, doi:10.1016/j.jfs.2008.08.003. Peek, J., Rosengren, E.S., & Kasirye, F. 1999. The poor performance of foreign bank subsidiaries: Were the problems acquired or created? Journal of Banking and Finance, 23(2): 579-604. Penas, M.F., & Unal, H. 2004. Gains in bank mergers: Evidence from the bond markets. Journal of Financial Economics, 74(1): 149-79. Seth, A., Song, K.P., & Pettit, R.R. 2002. Value creation and destruction in cross-border acquisitions: An empirical analysis of foreign acquisitions of US firms. Strategic Management Journal, 23(10): 921-40. Wan, W.P., Yiu, D.W., Hoskisson, R.E., & Kim, H. 2008. The performance implications of relationship banking during macroeconomic expansion and contraction: A study of Japanese banks social relationships and overseas expansion. Journal of International Business Studies, 39(3): 406-27. Warga, A., & Welch, I. 1993. Bondholder losses in leveraged buyouts. The Review of Financial Studies, 6(4): 959-82.

Master Thesis topic 22: Sustainability in the Real Estate Market

In 2002 European leaders promised each other to reduce the CO2 emissions and limit the use of scarce natural resources. The real estate market is one of the main users of natural resources (for instance 40% of the global wood consumption) and one of the main issuers of CO2. Hence, the real estate market has committed itself to innovate and fuel the sustainability of the market for the years to come. Various initiatives have been developed, among which the introduction of energy certificates. The market of sustainability is vast, but also populated by lobbyists, who reason the benefits without seeking for evidence. In this thesis topic, students are invited to critically assess the dynamics, evolution and effects of sustainability initiatives within the real estate arena. Although the topic is still young, empirical research is feasible and needed. Students are advised to have a close look at the related literature (see for some references below) and contemplate the empirical opportunities that are available. Working with data and regression analysis is a must in the topic and student need to be aware of this before starting. Some literature Brounen, D., N. Kok, and J.M. Quigley, 2009, Energy Performance Certification in the Residential Sector: Implementation and Valuation in the European Union, Berkeley: Institute of Business and Economic Research Eichholtz, P.M.A., Kok, N. and Quigley, J.M. "Doing Good by Doing Well: Green Office Buildings," 2009. American Economic Review, forthcoming Miller, N. , Spivey, J. and A. Florance. Does Green Pay Off?, 2008. Journal of Real Estate Portfolio Management 14(4) Schipper, L. "Improved Energy Efficiency in the Industrialized Countries: Past Achievements, Co2 Emission Prospects " Energy Policy, 1991, 19(2), pp. 127-37.

Master Thesis topic 23: The Role of Banks in the 2008/2009 Financial Crisis
Background Banks play a crucial role in developed economies. They provide liquidity by financing long-term investments with short-term funding (Kashyap, Rajan, and Stein, 2002; Gatev and Strahan, 2006; Berger and Bouwman, 2009). However, many economists identify the behavior of banks as one of the main causes of the current financial crisis (e.g., Brunnermeier, 2009). Banks have been blamed for, among other things, too much risk taking, irresponsibly increasing their leverage, betting on the real estate bubble, investing too much in securities markets instead of old-fashioned bank loans, creating perverse incentives through excessive compensation packages, relying too much on short-term inter-bank financing, using off-balance sheet constructions to hide their exposure to risk, and issuing complex securities that nobody understands (think of CDO-squareds). Literature A number of theoretical papers among others, Brunnermeier and Pedersen (2009) describe the liquidity spirals or asset market feedback loops through which the behavior of financial intermediaries can affect financial markets and vice versa. Adrian and Shin (2007) provide an empirical illustration of how the leverage of U.S. investment banks affects financial market liquidity. Recently, a few papers appeared that analyze the role of banks in the financial crisis (e.g., Beltratti and Stulz, 2009; Fahlenbrach and Stulz, 2009). And there is a long tradition of research on the role of banks in the economy and on the impact of financial regulation on bank behavior and economic performance (e.g., Barth, Caprio, and Levine, 2004; Demirgc-Kunt, Laeven, and Levine, 2004; Laeven and Levine, 2008; Demirgc-Kunt and Huizinga, 2009). Research topic Many important questions remain unanswered. What short-term and long-term trends in bank behavior can we distinguish before the crisis? Can these trends be attributed to the corporate governance of banks, developments in financial markets, or changes in financial regulation? Which banks did better during the financial crisis and why? Can we identify important changes in bank behavior (and in particular funding and risk taking) since the start of the crisis? Are there important differences across countries? Can we explain those differences using information on the characteristics of the financial sector in those countries? Can we uncover a direct link between bank behavior and financial market variables such as market liquidity? Master thesis If you are a talented and motivated student interested in doing an empirical study on the role of banks in the financial crisis for your Master thesis, read the articles below and try to come up with a broad thesis topic. Once you know in which direction you want to go, read at least 10 additional articles on that specific topic. Make sure you do a thorough search for recent research on this topic using and The next step is to formulate a specific research question that has not been answered before and that is feasible in terms of data availability, methodology, and time frame.

Data A number of interesting databases is available for research in this area: Bankscope (available through the university library) contains detailed annual balance sheet data for a large universe of banks; Datastream contains stock market data for listed banks around the world. The World Banks Bank Regulation and Supervision Dataset is a good source for information on bank regulation in different countries, see:,,c ontentMDK:20345037~pagePK:64214825~piPK:64214943~theSitePK:469382,00. html The Federal Reserve Board provides weekly balance sheet data of the aggregate U.S. banking sector on the following website: The Federal Reserve Bank of Chicago provides quarterly balance sheet and income statement data for all individual insured U.S. commercial banks through the Consolidated Report of Condition and Income Database (also known as the Call Reports). See Kashyap and Stein (2000). Available at: Laeven and Valencia (2009) have constructed a database on banking crises Ross Levine has developed a number of interesting international databases related to banks and bank regulation. See his websites for links. There are many other potential databases. Check what existing papers are using and search online for alternatives. Selected references Adrian, T., and H.S. Shin, 2007, Liquidity and leverage, working paper. Barth, T., G. Caprio, and R. Levine, 2004, Bank regulation and supervision: What works best?, Journal of Financial Intermediation 13, 205-248. Beck, T., A. Demirg-Kunt, and R. Levine, 2000, A new database on financial development and structure, World Bank Economic Review 14, 597-605. Update available on Beltratti, A., and R.M. Stulz, 2009, Why did some banks perform better during the credit crisis? A cross-country study of the impact of governance and regulation, working paper. Berger, A., and C. Bouwman, 2009, Bank liquidity creation, monetary policy, and financial crises, working paper. Brunnermeier, M.K., 2009, Deciphering the liquidity and credit crunch 2007-2008, Journal of Economic Perspectives 23, 77-100. Brunnermeier, M.K., and L.H. Pedersen, 2007, Market Liquidity and Funding Liquidity, Review of Financial Studies, forthcoming. Demirgc-Kunt, A., and H. Huizinga, 2009, Bank activity and funding strategies: The impact on risk and return, working paper, World Bank / Tilburg University. Demirgc-Kunt, A., L. Laeven, and R. Levine, 2004, Regulations, market structure, institutions, and the cost of financial intermediation, Journal of Money, Credit and Banking 36, 593-622.

Fahlenbrach, R., and R.M. Stulz, 2009, Bank CEO incentives and the credit crisis, working paper. Gatev, E., and P.E. Strahan, 2006, Banks advantage in hedging liquidity risk: Theory and evidence from the commercial paper market, Journal of Finance 61, 867892. Kashyap, A.K., R. Rajan, and J. Stein, 2002, Banks as liquidity providers: An explanation for the coexistence of lending and deposit-taking, Journal of Finance 57, 33-73. Kashyap, A.K., and J. Stein, 2000, What do a million observations on banks say about the transmission of monetary policy?, American Economic Review 90, 407-428. Laeven, L., and R. Levine, 2008, Bank governance, regulation, and risk taking, Journal of Financial Economics, forthcoming. Laeven, L., and F. Valencia, 2009, Systemic banking crises: A new database, working paper.

Master Thesis topic 24: The informational content of yield curves

The yield curve is an important information source for many (macroeconomic) analysts. For instance, central banks decompose the yield curves on a daily basis. Typically, analysts will scrutinize the yield curve and decompose it into level, slope and curvature factors. Subsequently, these factors are used and seen as indicators for future macroeconomic developments, including future recessions, inflation scares or even financial turmoil. The reasons why these yield curve factors (level, slope and curvature) are informative with respect to macroeconomic factors remain an open question. Some have argued that it is related to the extended expectations hypothesis and the conduct of monetary policy, relating short term rates to current macroeconomic conditions. The above topic allows for various types of more detailed and focused research questions. A non-exhaustive list of possible topics is listed below: 1. What type of macroeconomic information is contained in the level, slope and curvature factors? 2. Why does the macroeconomic information get integrated in the yield curve? 3. Is the information content of yield curves stable over time? 4. Can we use the yield curve information to generate hedging against fundamental macroeconomic risks? 5. Are the term premiums in the yield curve related to macroeconomic risks? 6. . Additional detailed information can be found in the FAQ section of the FED site: The topics require some knowledge of (affine) yield curve theory. You may want to consult the investment course notes.

Master Thesis topic 25: Carry trade profits during periods of crisis
One of the main puzzles in international finance has been the carry trade puzzle, i.e. the failure of uncovered interest rate parity. In words, the carry trade puzzle is the observation that excess returns can be obtained by investing in high interest rate countries. Three types of explanations are typically put forward in the literature: irrational expectations, risk premia and Peso problems. Although each explanation is in theory possible it has been proven hard to empirically test the latter two theories as they rely on extreme events (crises) occurring. The current financial crisis provides a unique opportunity to test the Peso problem and the risk premium theory for the carry trade puzzle. Brunnermeier, Nagel and Pederesen (2007) Carry Trades and Currency Crashes, working paper

Master Thesis topic 26: Asset markets and disaster risk: Asset pricing of asymmetric returns
Typical CAPM models assume that the risk of an asset is fully captured by the comovement of the asset with the market, i.e. its beta. This statement implies, among other things, that the CAPM model ignores the higher moments of the returns. For instance the probability of extreme events (kurtosis) or the skewness of the returns is (according to the CAPM) irrelevant. More recent theories, e.g. Dittmar (2004), show that higher moments ( i.e. skewness and kurtosis) also require a risk premium: assets with skewed negative returns or with more extreme returns typically incorporate an additional risk premium. The idea of this line of research is to update existing studies with the information contained in the financial crisis. The crisis is particularly relevant in this respect given that it has generated negatively skewed and extreme returns. Hence it provides a good case study to test these newer theories. Dittmar (2002), Nonlinear Pricing Kernels, Kurtosis Preference, and Evidence from the Cross-Section of Equity Returns, Journal of Finance, 57, 369-403

Master Thesis topic 27: Commercial Real Estate

One of the factors shared by all real estate types is that their characteristics are very heterogeneous. It is difficult to compare prices for two office buildings because factors like age, size and maintenance level are very unlikely to be the same whereas identical locations can always be ruled out. It is possible to study the monetary value of heterogeneous property characteristics with the use of so called hedonic regression analysis. Hedonic regression analysis is a statistical tool used to disentangle a property into different components and to assign values to different characteristics. Traditionally hedonic regression analysis has been applied to objects like cars, planes and houses but advances in data availability make studies of commercial real estate assets feasible. This project uncovers the specific variables that contribute to asking rent levels for retail, office or industrial properties. Analysis of this type is very dependent on and can be partly hampered by data availability but creative appliance of different data sources can make the difference. For this research project it is possible to use the data of one of the major US commercial real estate data providers. Based on available data it is possible to examine a huge number of topics which can range from property valuation to urban economic questions. Some issues to think of are: - The impact of green labels on office building asking rents (Eicholtz, Kok and Quigley (2009) - Impact of clustering of office rents (Jennen and Brounen, 2009; Archer and Smith, 2003) - Consistency of factors in a cross-city comparison (Cox, 2009) Students interested in this topic should have a basic understanding of regression analysis. A nice introductory textbook on real estate is Geltner et al, 2007 (available at the university library). Related literature: Archer, W. and M. Smith (2003), Explaining Location Patterns of Suburban Offices, Real Estate Economics, Vol. 31(2), pp. 139-164. Cox, R.H.G.M (2009), The impact of office density on rents, localization economies in a network Perspective, Master Thesis Finance & Investments, available at BIC Eichholtz,P., Kok, N., Quigley, J. (2009), Doing well by doing good? Green office buildings, forthcoming in American Economic Review Geltner, D., Miller, N., Clayton, J., Eicholtz, P. (2007), Commercial Real Estate Analysis & Investments, 2nd edition, Thomson South-Western Jennen, M. and D. Brounen (2009), The Effect of Clustering on Office Rents, Evidence from the Amsterdam Market, Real Estate Economics, Vol. 37(2), pp.185-208

Mills, E.S. (1992), Office Rent Determinants in the Chicago Area, Journal of the American Real Estate and Urban Economics Association, Vol. 20(1), pp. 273-287. Rosen, S. (1974), Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition, Journal of Political Economy, Vol. 82(1), pp. 34-55.

Master Thesis topic 28: Financial derivatives as proxies of liquidity crises

During the last couple of months we have been witnessing a global financial turmoil that first emerged in US on August 2007, but since then has expanded tremendously affecting both developed and emerging markets in Europe and Asia. Significant financial institutions went bankrupt (e.g. Lehman Brothers, WaMu) others have been nationalized (e.g. Fannie Mae, Freddie Mac, Bradford & Bingley) or acquired by other institutions (e.g. Merrill Lynch, Wachovia, Bear Stearns) not only in US but in the whole world. But what is the cause of this crisis? What inflicted such distress in the global financial system? Warren Buffet had long ago described derivatives as financial weapons of mass destruction. Instead of being used to hedge risk, derivatives are often blamed for serving speculating purposes whereas in some cases are so complicated that can become extremely difficult to evaluate. In the present crisis, derivatives hold a very significant role. It is commonly considered that CDOs and other similar asset backed securities are mainly to blame for triggering this crisis. CDS is another instrument which gained notoriety for allowing speculators to bet or even manipulate the market against a company, further deteriorating financial stability in periods of distress. It would be interesting to examine derivatives as proxies of liquidity crises. For this purpose someone could study indices of such derviatives (e.g. ABX, CDX) and try to recognize causality patterns with the indices of the corresponding underlying securities or apply a liquidity measure for the derivative (e.g. bid-ask spread or Amihuds proxy) and check how this could be related with the liquidity of the underlying (e.g. CDS liquidity could be related not only with the liquidity of the insured bonds but also with the liquidity of the corresponding equity). The purpose of the thesis is to make a student familiar with the existing literature, understand the role of derivatives in the crisis (including the ones aforementioned) and develop new ideas about how certain derivatives could have indicated the individual companies or even more the economic sectors that are mostly affected by the current liquidity crisis. References: 1. Amihud Amihud, Yakov, 2002, Illiquidity and stock returns: cross-section and timeseries effects, Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56 2. Brenner, M., R. Eldor, S. Hauser, 1999, The Price of Options Illiquidity, New York University, Leonard N. Stern School Finance Department Working Paper Series 99-086 3. Chen, R., X. Cheng, L. Wu, 2005, Dynamic Interactions between interest rate, credit and liquidity risks: Theory and evidence form the term structure of credit default swaps, Working Paper, Rutgers Business School and City University of New York. 4. Bongaerts, D., D., F. Jong, Joost Driessen, 2008, Liquidity and liquidity risk premia in the CDS market, Preliminary Version, University of Amsterdam 5. Das, S., D. Duffie, N. Kapadia, L. Saida, 2007,Common Failings: How corporate Defaults are Correlated, Journal of Finance, Vol. 62, No. 1, pp. 93-117

6. Chen, R., X. Cheng, L. Wu, 2005, Dynamic Interactions between interest rate, credit and liquidity risks: Theory and evidence form the term structure of credit default swaps, Working Paper, Rutgers Business School and City University of New York. 7. Longstaff, F., S. Mithal, E. Neis, 2005, Corporate yield spreads: Default risk or liquidity? New evidence from the credit default swap market, The Journal of Finance Volume 60 Issue 5, Pages 2213 2253. 8. Tang, D., H. Yong, 2007, Liquidity and Credit Default Swap Spreads, Working Paper, Kennesaw State University and University of South Carolina.

Master Thesis topic 29: Asset Pricing and Mutual Fund Performance
Asset returns may contain risk premia that compensate investors for bearing a variety of uncertainties in their investment portfolios. Capital Asset Pricing Models (Sharp, 1964; Lintner, 1965; Black, 1972) have been extensively studied and used to test the existence of other risk factors besides the market portfolio. Fama and French (1992, 1993) introduced size and value factors, which started the new and enthusiastic discussions and studies on asset pricing. There have been a plethora of studies investigating the relationship between risk factors (market, value, size, momentum, liquidity, inflation and so on) and the cross-section of stock returns. Are there actually any anomalies that can be exploited by investors? Do investors believe in market efficiency? Can one explain and even predict expected stock returns based on the public information at hand? There are still a lot of room for research in this direction. Multi-factor asset pricing models, GRS test, GMM methodologies, etc, can all be potentially used in such empirical studies. For students who are interested, there are a lot to learn and there are a lot to be achieved. Within the modern asset pricing framework, there have also been a lot of studies focusing on mutual fund returns rather than stock returns. Grinblatt and Titman (1992), Hendricks, Patel and Zeckhauser (1993), Carhart (1997) inter alia started the discussion of mutual fund performance persistence. As for the issue whether an average mutual fund manager is able to outperform the passive benchmark before and after fees, the evidences are mixed. Are investors able to identify certain outperforming mutual funds? Is the outperformance due to the embedded superior managerial abilities or just to luck? Are the fees requested by mutual fund industry too high compared to their performance? Is there any other risk factor that can take away the significance of different performance metrics? Do fund flows matter? Can we gain more insights into fund performance based on the holdings information published regularly? What is the influence of survival of mutual funds on these metrics? References Black, F., 1972. Capital market equilibrium with restricted borrowing. Journal of Business, 45: 444-455.
Carhart, M., 1997. On persistence in mutual fund performance. The Journal of Finance 52(1), 57-82.

Fama, E.F. and French, K., 1992. The cross section of expected stock returns. The Journal of Finance, 47: 427-466. Fama, E.F. and French, K., 1993. Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33: 3-56.
Hendricks, D., Patel, J., Zechhauser, R., 1993. Hot hands in mutual funds: Short-run persistence of relative performance, 1974-1988. The Journal of Finance 1, 93-130.

Grinblatt, M., Titman, S., 1992. The persistence of mutual fund performance. The Journal of Finance 5, 1977-1984.

Lintner, J., 1965. The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets, Review of Economics and Statistics, 47: 13-37. Sharp, W.F., 1964. Capital assets prices: A theory of market equilibrium under conditions of risk. The Journal of Finance, 19: 425-442.

Master Thesis topic 30: Convertible and exchangeable bond offerings

Most studies on corporate capital structure policies focus on straight debt or equity issuance decisions. Next to these standard financing instruments, companies can also issue so-called hybrid securities that have characteristics of both debt and equity. Two examples of such hybrid securities include convertible bonds and exchangeable bonds. Convertible bonds (Convertibles) are debt instruments that can be converted into the common stock of the issuing company at the option of the investor. Exchangeable bonds (Exchangeables) are debt instruments that can be converted into the common stock of a target company in which the issuing firm has an ownership interest. Over the past decades, convertible debt financing has become more and more popular, both in the US and in Western Europe. Despite this growing popularity, however, there is still no conclusive evidence on the issuance motivations for convertibles (see, for example, Bancel and Mittoo (2004) and Lewis et al. (1999)). In addition, very little is known on the reaction of the shareholders when firms announce they will issue convertible bonds. In the empirical finance literature, it is generally acknowledged that convertible debt announcements provoke negative abnormal stock returns intermediate between the abnormal returns associated with straight debt and pure equity announcements. However, as noted by Lewis et al. (1999), there are no systematic results yet on the underlying causes of these negative shareholder reactions. For exchangeable bonds, evidence on issuance motivations and stockholder wealth effects is even more scarce (see Ghosh et al. (1990) and Ammann et al. (2006)). This master thesis topic focuses on issues related to the determinants and stock price effects of convertible and exchangeable debt offerings. Specific research questions that can add value to the literature could be (but are not limited to): How do convertibles fit into a portfolio context? Do they form part of the optimal portfolio? Do they play a larger role in up/down markets? Useful reference: Ranaldo and Eckman. (2004); Lummer and Riepe (1993) The value of the option component of a convertible bond increases with volatility (Brennan and Schwartz, 1988), so that issuers should time their issues to coincide with periods of abnormally high volatility. However, papers such as Henderson (2005) and Lewis et al. (2002) do not find evidence consistent with this. In this project you will examine this more deeply, using sub-samples and perhaps different volatility estimates. Some recent papers have started looking at the effect of qualitative information contained in news announcements on market values. This project looks at the value of qualitative information in convertible bond prospectuses for investors. Useful reference:

Tetlock et al. (2008) What are the differences in the characteristics of various convertible debt types? Motivation: US companies often issue convertibles with exotic-sounding names such as PERCs, DECs, LYONs etc. This research question examines the differences in the contract terms, the issuer motivations and the stockholder wealth impact of these different convertible debt types. Useful reference: Arzac (1997)

Convertible bond issues are issued at a discount to the theoretical value, which varies over time. In this project we examine why the discount varies over time and across issuers. Useful reference: Choi et al. (2008)

Analysis of the design characteristics of convertible debt offerings Motivation: Convertible debt offerings are characterized by a large set of design parameters, e.g., conversion premium, soft and hard call features, maturity, etc. This research topic examines how these features are related to each other (for example, do convertibles with a call feature generally have a longer maturity?) and how they affect the stockholder reactions to convertible debt announcements. Useful reference: Lewis et al. (1998)

What are the motivations for combined offerings of convertible debt with other security types (i.e., debt and/or equity)? Motivation: This research question is inspired by the empirical observation that firms often combine convertible debt offerings with either straight debt or equity offerings. It examines the firm-specific and/or macroeconomic determinants driving these dual offerings, and thus extends previous security choice studies that tend to exclude dual security offerings from their analysis. Useful reference: Billingsley et al. (1994)

What are the motivations for exchangeable debt offerings? Motivation: As mentioned earlier, the motivations for exchangeable debt offerings remain a puzzle. More particularly, it is hard to understand why firms issue exchangeable bonds instead of directly selling their equity stake in the target firm on the market. This research question examines the differences in the determinants (both firmspecific and macroeconomic) driving exchangeable debt offerings and secondary equity offerings. The analysis is conducted on a sample of Western European firms, since exchangeables are much more prevalent in Europe than in the US. Useful reference: Ghosh et al. (1990)

When designing convertible bonds, issuers choose several parameters such as the yield to offer, the conversion premium, maturity and provisions. These depend on factors that are related to both the straight debt and option part of the convertible bond, such as interest rates, investor sentiment and issuer volatility and credit rating. How do these factors vary over time and how does the design of convertible bonds change to accommodate these factors. Are issuers of convertible bonds also issuers of other types of securities, or are they firms that can only raise finance by issuing convertible debt? In addition, how do the characteristics of convertible issuers change over time? There are some companies that have multiple convertible bond issues over time; do they structure their issue in the same way over time or adopt it to suit market conditions? By looking at the quarterly balance sheet of firms with outstanding convertibles, we can see how much has been converted or called in. This project involves obtaining this data and examining why there are variations.

References Ammann, M., Fehr, M., Seiz, R., 2006. New evidence on the announcement effect of convertible and exchangeable bonds. Journal of Multinational Financial Management 16, 43-63. Arzac, E.R., 1997. Percs, Decs, and other mandatory convertibles. Journal of Applied Corporate Finance 10, 54-63. Bancel, F., Mittoo, U.R., 2004. Why do European firms issue convertible debt? European Financial Management 10, 339-373.

Bayless, M., Chaplinsky, S., 1996. Is there a window of opportunity for seasoned equity issuance? Journal of Finance 51, 253--278. Billingsley, R.S., Smith, D.M., Lamy, R.E., 1994. Simultaneous debt and equity issues and capital structure targets. Journal of Financial Research 4, 495-516. Brennan, M., Schwartz, E., 1988. The case for convertibles. Journal of Applied Corporate Finance 1, 5564. Choi, D., Getmansky M., Henderson B., and Tookes H. 2008. Convertible Bond Arbitrageurs as Suppliers of Capital, WP Ghosh, C., Varma, R., Woolridge, J.R., 1990. An analysis of exchangeable debt offers. Journal of Financial Economics 28, 251-263. Henderson, B., 2005. Convertible bonds: new issue performance and arbitrage Opportunities. Unpublished working paper. University of Illinois. Lewis, C.M., Rogalski, R.J., Seward, J.K., 1998. Agency problems, information asymmetries, and convertible debt security design. Journal of Financial Intermediation 28, 32-59. Lewis, C.M., Rogalski, R.J., Seward, J.K., 1999. Is convertible debt a substitute for straight debt or for common equity? Financial Management 28, 5-27. Lewis, C., Rogalski, R., Seward, J., 2002. Risk changes around convertible debt offerings. Journal of Corporate Finance 8, 67-80. Lummer, S.L., Riepe M.W., 1993. Convertible bonds as an asset class; 1957-1992. Journal of Fixed Income 3, 4757. Ranaldo, A., Ackmann A., 2004. Convertible bonds: characteristics of an asset class. Working Paper (UBS). Tetlock, P.C., Saar-Tsechansky, M., Macskassy, S., 2008. More than words: Quantifying language to measure firms fundamentals. Journal of Finance (forthcoming).

Master Thesis topic 31: Dividend Policy of Dutch Firms in the 20th Century
This thesis topic is exclusively for students that are interested in gaining a better understanding of the development of dividend policy or possibly want to make an attempt to resolve part of the so-called dividend puzzle. Dividend policy is one of the main themes in corporate finance. Thusfar, students seem to neglect this topic, which is actually full of interesting opportunities. The most important aspects of that can be investigated are tax, asymmetric information and incomplete contracts (agency models), imperfect capital markets, share repurchases (Lease et al, 2000; Allen and Michaely, 2003). As such dividend policy decisions are closely related to most of the other corporate finance decisions and firm performance (e.g. capital structure choice, governance structures). Students are also welcome to look beyond usual suspects, for other interesting ideas look into Journal of Finance of Journal, Financial Economics or other journals. Most studies of dividend policy decisions focus on recent periods. In the Netherlands some studies have been carried out on these topics for periods starting in the 1980s. History can add fascinating dimensions in research on corporate decision-making. Data on longer time periods allow long-term studies on dividends and dividend policy of firms. It allows investigating the structural changes i.e. changes in the economic or the institutional setting (tax rules, company law, perception of dividends, etc) over time. Both mentioned dimensions can be extended to other corporate finance decisions and firm performance. An excellent source for historical data is Van Oss Effectengids. This annually published guide contains diverse information about all Dutch exchange-listed companies. It includes actual and statutory profit distributions (dividends), firm characteristics (such as firm goal, firm type and main activities); balance sheets, profit and loss statements, debt and equity issues, dividends, board members, takeover defenses and important news such as mergers and bankruptcies. The topic requires understanding of Dutch. Examples of studies that can be carried out answer questions like: - How did dividends develop over time? What factors affected this development? - What firms initiate, increase, decrease, omit or have stable dividends in the 20 th century? - Testing the Lintner model for different periods in the 20th century? - What is the effect of e.g. catering theory on dividend policy? - How were dividends and dividend policy perceived during different periods in the 20th century? E.g. pre-World War II or post-World War II. This would require an extensive literature study, and students are encouraged to combine this with some empirical analysis. This could be a splendid topic for students that are not really into statistical analysis. References Allen, F. and R. Michaely (2003). Payout policy. In Handbook of the economics of finance, G.M. Constantinides, M. Harris and R. Stulz (eds), Elsevier (or via Lease, R.C., K. John, A. Kalay, U. Loewenstein and O.H. Sarig (2003). Dividend policy: Its impact on firm value, Harvard Business Press.

Master Thesis topic 32: Dividend Policy and Life Cycle Theory
This thesis topic is exclusively for students that are interested in gaining a better understanding of the development of dividend policy or possibly want to make an attempt to resolve part of the so-called dividend puzzle. Dividend policy is one of the main themes in corporate finance. Dividend policy is closely related to most of the other corporate finance decisions and firm performance (e.g. capital structure choice, governance structures). The main aspects in dividend research are effects of tax, asymmetric information and incomplete contracts (agency models), imperfect capital markets, share repurchases (Lease et al., 2000; Allen and Michaely, 2003). A recent development is the increased interest in understanding the effect of life cycles on dividends (e.g. DeAngelo et al., 2006). How do individual life cycle stages affect dividends. This topic can be investigated best in longer time periods. Examples of studies that can be carried out answer questions like: - What is the effect of life cycle theory on dividend policy? - What firms initiate, increase, decrease, omit or have stable dividends? References Allen, F. and R. Michaely (2003). Payout policy. In Handbook of the economics of finance, G.M. Constantinides, M. Harris and R. Stulz (eds), Elsevier (or via DeAngelo, H. and L. DeAngelo (2007) Payout Policy Pedagogy: What Matters and Why, European Financial Management, Vol.13 (1), pp. 11-27. DeAngelo, H., L. DeAngelo and M. Stulz (2006) Dividend Policy and earned/Contributed Capital mix: a test of the lifecycle theory, Journal of Financial Economics, Vol. 81, No.2, pp. 227-254. Lease, R.C., K. John, A. Kalay, U. Loewenstein and O.H. Sarig (2003). Dividend policy: Its impact on firm value, Harvard Business Press.

Master Thesis topic 33: Liquidity Black Holes

Background Reinhart and Rogoff (2008) argue that the current financial crisis does not exhibit many differences from prior crises. However, there is one major difference, the role liquidity played in the meltdown of the global financial system in 2008. The causal relation as pointed out by Alan Greenspan in a speech in 1999 was reversed. Not the crisis affected the liquidity of financial markets but drops in the liquidity of a range of assets lead directly into the crisis of 2008. Liquidity or the ability to sell assets quickly without a large price impact is crucial for the functionality of financial markets. One question that arises naturally is what causes this relation between liquidity and the stability of the global financial system. Persaud (2002) argues that regulatory issues and the diversity of financial markets play an important role. Liquidity Black Holes A liquidity black hole (LBH) is the analogue of the run in a bank run model and occurs if falling asset prices attract further sellers. Those liquidity spirals can lead to a complete dry-up of market liquidity along with a marked drop in asset prices (see Morris and Shin, 2004 for a theoretical discussion). Not all LBHs turn into a full-blown global financial crisis. In fact, sudden dry-ups in liquidity often last only a few hours or days with minor consequences for the economy. Still, adverse movements in market liquidity are of high interest for both investors and regulators. Investors exercising transactions during the time of a LBH face substantially higher transaction costs. Also, the likelihood of a LBH can result in a systematic source of risk for which investors want to be compensated. Regulators should consider the effects of financial market regulation on the likelihood and the consequences of liquidity black holes. Research Topic Little is known about the occurrence of liquidity black holes in different financial markets. In fact, not even the determinants of liquidity across markets are clear (Spiegel, 2008). Potential research questions could focus on three issues. First, what are the determinants of liquidity across markets? Why are some markets highly liquid while others do not even exist? Second, under which circumstances do liquidity black holes occur? Which exogenous factors (including capital market regulation or cross-market capital flows) affect the probability of a LBH? Which role do liquidity spirals and feedback trading (Shim, Von Peter, 2007; Cohen, Shin, 2004) play? Can we predict liquidity black holes with available financial or macroeconomic data? Third, how do LBHs spread across markets and national borders? Why do LBHs sometimes appear only locally and disappear shortly after without a large economic impact while others spread across markets and turn into a global financial crisis? Master thesis If you are a talented and motivated student interested in doing an empirical study on the emergence of liquidity black holes for your Master thesis, read the articles below and try to come up with a broad thesis topic. Once you know in which direction you want to go, read at least 10 additional articles on that specific topic. Make sure you do a thorough search for recent research on this topic using and The

next step is to formulate a specific research question that has not been answered before and that is feasible in terms of data availability, methodology, and time frame. Data Liquidity cannot be measured directly. Several proxies have been established in the literature, e.g. the bid-ask spread or the Amihud (2002) measure. Goyenko et al (2009) provide the most recent overview. A number of interesting databases can be explored to find liquidity data and other explanatory variables. Datastream contains stock and bond price and volume data around the world. Bloomberg provides stock and bond data including bid-ask spreads The World Banks Bank Regulation and Supervision Dataset is a good source for information on regulation in different countries, see:,,content MDK:20345037~pagePK:64214825~piPK:64214943~theSitePK:469382,00.Html IMF World Economics Outlook provides global macroeconomic data TAQ - Daily transaction data from the New York Stock Exchange There are many other potential sources of data. Check what existing papers are using and search online for alternatives. References Amihud, Y. (2002) Illiquidity and stock returns: cross-section and time-series effects; Journal of Financial Markets, 5 (1), 31-56 Brunnermeier, M.; Pedersen, L. (2007) Market Liquidity and Funding Liquidity; Review of Financial Studies, 2009, 22 (6), 2201-2199 Cohen, B.; Shin, H. (2004) Positive feedback trading under stress: Evidence from US Treasury securities market; working paper Goyenko, R.; Holden C.; Trzcinka, C. (2009) Do liquidity measures measure liquidity? Journal of Financial Economics 92 153-181 Morris, S.; Shin, H. (2004) Liquidity Black Holes; Review of Finance 8, 1-18 Persaud, A. (2002) Liquidity Black Holes; UN discussion paper No. 2002/31 Reinhart, C.; Rogoff, K. (2008) Is the 2007 US Sub-Prime Financial Crisis So Different? An International Historical Comparison; American Economic Review: Papers & Proceedings 2008, 98:2, 339344 Shim, I.; Von Peter, G. (2007) Distressed Selling and Asset Market Feedback; BIS working paper No. 229 Spiegel, M. (2008) Patterns in cross market liquidity; Finance Research Letters 5 210

Master Thesis topic 34: Subprime dynamics

The Chapter 11 filing of Lehman Brothers on 15 th September 2008 started the worldwide financial crisis (credit crunch). Billions of dollars in market value of banks evaporated once it became clear that a large proportion of their financial assets were invested in so called subprime- and alt-a mortgages. During the last two decades, a growing number of American households were able to get a mortgage to buy a house while their financial situation was not robust enough to carry the obligations in case of an economic downturn. A major force driving this form of (predatory) lending is the general believe that homeownership creates positive externalities such as a stable neighborhood (Rohe and Stewart, 1996), enhanced public involvement and investment in social capital (Kleinhans et al., 2007; DiPasquale and Glaeser, 1999), performance of children at school (Green and White, 1997) and wealth accumulation (Kim, 2000). In this topic we want to investigate whether and how these benefits of homeownership are present in Holland. The outcomes of this research can have important implications for policy makers. Students might have a look at two nice review papers from Dietz and Haurin to identify research questions. To get an idea which data can be used to test propositions it is recommended to look at the Woononderzoek (in Dutch), available at the website of the Dutch Ministry of Urban Policy and Housing. Students need some basic understanding in regression analysis. Related literature Dietz, R., Haurin D. (2003) The social and private micro-level consequences of homeownership, Journal of Urban Economics, 54, 401-450 Haurin, D., Dietz, R., Weinberg, B. (2003) The impact of Neighborhood Homeownership Rates: A Review of the Theoretical and Empirical Literature, Journal of Housing Research, 13(2), 119-151 DiPasquale, D., Glaeser, E. (1999) Incentives and Social Capital: Are Homeowners Better Citizens, Journal of Urban Economics, 45, 354-384 Green., R., White, M. (19970 Measuring the benefits of homeowning: Effects on children, Journal of Urban Economics, 41, 441-461 Kim, S. (2000) Race and home price appreciation in urban neighborhoods: evidence from Milwaukee, Wisconsin, The Review of Black Political Economy, 28, 9-28 Kleinhans, R., Priemus, H., Engbersen G. (2007) Understanding Social Capital in Recently Restructured Urban Neighbourhoods: Two Case Studies in Rotterdam, Urban Studies, 44(5/6), 1069-1091 Rohe, W., Stewart, L. (1996) Homeownership and Neighborhood Stability, Housing Policy Debate, 7(1), 37-81

Master Thesis topic 35: The Pricing of Residential Dwelling

Housing assets play a crucial role in the national economy at both the macro and micro levels. For instance, the Dutch housing market has a total value of around 1.4 trillion euros, so housing assets clearly are a significant component of national financial assets. For individual households, housing assets are considered as one of the biggest investments. Thus, there is a lot of interest in understanding how to accurately measure house values and predict their changes over time. The heterogeneous nature of houses makes this analytical task very difficult. Three types of methodology have been frequently used in previous studies. They are the hedonic method, the repeat sales method and the hybrid method. The hedonic price model is constructed by regressing the value of heterogeneous goods on the quantities of available characteristics associated with the goods. The estimated coefficients in the regression are defined as the implicit price of each attribute (Rosen 1974). The repeat sales approach only focuses on repeated sales of single dwellings in order to derive price dynamics under the assumption that both the implicit prices and housing characteristics are constant over time. The combination of both approaches is the so-called hybrid method, which can provide a sharp insight into the pure price dynamics, changes in the housing characteristics and price variations across sub-samples of the housing market. Students interested in this topic are expected to apply at least one of these approaches. Potential research questions are: 1. How does age influence the house prices? 2. How does the implicit price of house attributes change over time? 3. How does the implicit price of house attributes vary across submarkets? 4. How large does the intangible component contribute to the overall house prices? 5. Are there any important factors that previous researchers did not incorporate in the Hedonic Price Model? 6. How do the external macro-factors influence the change of house prices? 7. Does residential dwelling provide a good inflation hedge ? 8. What is the relationship between house price movement and stock prices dynamics ? 9. What is the relationship between housing market and office market ? Students interested in this topic should have some basic education in the field of real estate and experience in using one of the statistical software such as Excel, SPSS, Eviews, Matlab. Students should also be prepared to collect their own data and find relevant literature. It is recommended to write your thesis based on the following structure: 1. Motivation and Introduction 2. Literature Review (Theory, Methodology and Empirical Evidence) 3. Theoretical framework and hypothesis 4. Data & Methodology 5. Empirical analysis 6. Conclusions

Related Literature: Bailey, M., R. Muth and H. Nourse. 1963. A Regression Method for Real Estate Price Indmex Construction. Journal of the American Statistical Association 58: 933942. Case, B. and J. Quigley. 1991. The Dynamics of Real Estate Prices. Review of Economics and Statistics 73: 5058. Case, K. and R. Shiller. 1987. Prices of Single-Family Homes since 1970: New Indexes for Four Cities. New England Economic Review September/October: 4556. Clapp, J.M. and C. Giaccotto. 1999. Revisions in Repeat-Sales Price Indexes: here Today, Gone Tomorrow? Real Estate Economics 27: 79-104. Malpezzi, S. 2002. Hedonic Pricing Models: A Selective and Applied Review. Prepared for Housing Economics: Essays in Honor of Duncan Maclennan. Edited by K. Gibbs and A. OSullivan. Quigley, J.M. 1995. A Simple Hybrid Model for Estimating Real Estate Price Indexes. Journal of Housing Economics 4: 112. Rosen, S. 1974. Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition, Journal of Political Economy 82: 34-55. Sheppard, S., 1999. Hedonic Analysis of Housing Markets. In Paul C. Chesire and Edwin S. Mills (eds.), Handbook of Regional and Urban Economics, volume 3. Sirmans, G., D. A. Macpherson and E. N. Zietz. 2005. The Composition of Hedonic Pricing Models, Journal of Real Estate Literature 13: 3-43.

Master Thesis topic 36: The Subprime Crises- Real Estate Contagion
Commercial property lending has been a recurring cause of troubled assets in the banking industry over the past few decades. Direct real estate investments were strongly associated with failure and with resolution costs in the saving and loans crisis. Economists maintain that the main cause of the Asian crises was excessive real estate speculation. House prices have implications for banking and price stability. The subprime crises again illustrates that real estate busts impact the ability to lend which in turn affects liquidity and eventually the underlying economy. Banking crises and property crashes often go hand in hand. The disruptions in the subprime market quickly soared into other areas of the financial markets. Contagion refers to the phenomenon that episodes of financial turbulence tend to affect various countries, sectors or asset classes at once. One possible thesis subject could be related to understanding the ripple effect caused by the subprime crises through the world wide economy. Students should think of the following possible research venues in relation to real estate markets: - Contagion - Market interdependence - Sector substitutes (Flight to quality) Starting References: Brunnermeier M. 2008. Deciphering the 2007-2008 liquidity and credit crunch . Journal of Economic Perspectives. Forthcoming. Dooley, M., D. Folkerts-Landau and P. Garber. 2008. Will subprime be a twin crises for the U.S.?, NBER working paper 13978. Greenlaw, D., J. Hatzius, A. Kashyap and H. Shin. 2008. Leveraged losses: lessons from the mortgage market meltdown. Mian, A. and A. Sufi. 2008. The consequences of the mortgage credit expansion: evidence from the 2007 mortgage default crisis, NBER working paper 13936 Reinhart, C. and K. Rogoff. 2008. Is the U.S. subprime financial crises so different? An international historical comparison. American Economic Review forthcoming,

Master Thesis topic 37: Shareholder Identity

The fraction of market capitalization held by institutional investors has grown explosively, in 1970 institutional investors account for 28% of total U.S. Equity ownership versus the 70% in 2008. The increase in shareholdings and the trading activity of institutional investors raises the question how these sophisticated investors influence the quality of equity markets? Generally, how does shareholder composition impact the stock market and corporate events? Can patterns in ownership explain comovement? The identity of the investor has grown in importance. Based on firm level ownership data students can examine the relation between shareholder composition and - Market Efficiency - Comovement - Trading behaviour - Style investing Students interested in this topic should be able to use statistical/econometrical software packages, and have experience with financial data collection. Starting References: Barberis, N., and A. Shleifer, 2003, Style Investing, Journal of Financial Economics 68, 161-199. Barberis, N., A. Shleifer and J. Wurgler, 2005, Comovement, Journal of Financial Economics 75, 283-317. Boehmer, E., and E.K. Kelley, 2009, Institutional Investors and the Informational Efficiency of Prices, The Review of Financial Studies, 22, 3563-3594. Gompers, B. and Metrick A., 2001, Institutional Investors and equity prices, quarterly Journal of Economics 116, 229-259. Hotchkiss E.S. and D. Strickland, 2003, Does Shareholder Composition Matter? Evidence from the Market Reaction to Corporate Earnings Announcements, The Journal of Finance, 58, 4, 1469-1498.

Master Thesis topic 38: Short Selling

On July 16th 2008 at close of trading, shares in Fannie Mae were down 27.3 per cent to $7.07, shares in Freddie Mac were 26 per cent lower at $5.26. At that moment the Securities and Exchange Commission introduced for the first time an emergency rule related to short-selling. The emergency action seized any short-selling in shares of 799 financial institutions such as mortgage financiers Fannie Mae and Freddie Mac. According to the Securities and Exchange Commission abusive short-selling contributed to the collapse of Bear Stearns and Lehman Brothers. To date we know relatively little about short sellers and which firms they target, do short sellers discipline managers targeting poorly governed firms, when do they enter a short sale? Several directions for empirical research on short sales could be the determinants and timing of short sales. Students interested in this topic should be able to use statistical/econometrical software packages, and have experience with financial data collection. Starting References: Boehme, Rodney D., Bartley R. Danielsen & Sorin M. Sorescu (2006), Short-sale constraints, differences of opinion, and overvaluation, Journal of Financial and Quantitative Analysis 41, 455-487. Boehmer, Ekkehart, Zsuzsa R. Huszar & Bradford D. Jordan (2009), The good news in short interest, Forthcoming Journal of Financial Economics. D'Avolio, G. (2002), The market for borrowing stock, Journal of Financial Economics 66, 341-360. Nagel, Stefan (2005), Short sales, institutional investors and the cross-section of stock returns, Journal of Financial Economics 78, 277-309.