Professional Documents
Culture Documents
Master Thesis Topics
Master Thesis Topics
Table of Contents
Master Thesis topic 1: The Design of Lockup Contracts in IPO Firms in Europe. 4
Master Thesis topic 2: Bank Risk Management.........................................................6
Master Thesis topic 3: The Ambiguous Role of Credit Ratings................................8
Master Thesis topic 4: Mergers and Acquisitions.......................................................9
Master Thesis topic 5: Trading Volume and Asset Prices........................................10
Master Thesis topic 6: Liquidity in Asset Markets...................................................11
Master Thesis topic 7: The Role of Corporate Governance in Mergers and
Acquisitions..................................................................................................................13
Master Thesis topic 8: The Risk of Corporate Fraud and Capital Market
Consequences...............................................................................................................15
Master Thesis topic 9: Credit Derivatives.................................................................16
Master Thesis topic 10: Bank-Borrower Relationships............................................17
Master Thesis topic 11: The Impact of CEO Personal Characteristics on
Corporate Finance Decisions......................................................................................18
Master Thesis topic 12: Corporate finance and governance of Dutch firms in the
20th century..................................................................................................................19
Master Thesis topic 13: The Governance of Banks..................................................20
Master Thesis topic 14: Asset pricing and the economic risk factors.....................21
Master Thesis topic 15: Greener Pastures for Investing: the Case of Emerging
Markets.........................................................................................................................22
Master Thesis topic 16: Understanding the global financial crisis: causes, real
consequences, and lessons...........................................................................................23
Master Thesis topic 17: The firms financial advisor selection with corporate
finance decisions...........................................................................................................24
Master Thesis topic 18: Residential Mortgage lending............................................25
Master Thesis topic 19: Private equity......................................................................26
Master Thesis topic 20: Professional asset management (mutual funds, hedge
funds, pension funds)...................................................................................................27
Master Thesis topic 21: Banking Beyond the Too Big to Fail Hypothesis...........30
Master Thesis topic 22: Sustainability in the Real Estate Market..........................32
Master Thesis topic 23: The Role of Banks in the 2008/2009 Financial Crisis......33
Master Thesis topic 24: The informational content of yield curves........................36
Master Thesis topic 25: Carry trade profits during periods of crisis.....................37
Master Thesis topic 26: Asset markets and disaster risk: Asset pricing of
asymmetric returns......................................................................................................38
Master Thesis topic 27: Commercial Real Estate.....................................................39
Master Thesis topic 28: Financial derivatives as proxies of liquidity crises...........41
Master Thesis topic 29: Asset Pricing and Mutual Fund Performance..................43
Master Thesis topic 30: Convertible and exchangeable bond offerings.................45
Master Thesis topic 31: Dividend Policy of Dutch Firms in the 20th Century......49
Master Thesis topic 32: Dividend Policy and Life Cycle Theory............................50
Master Thesis topic 33: Liquidity Black Holes.........................................................51
Master Thesis topic 34: Subprime dynamics............................................................53
Master Thesis topic 35: The Pricing of Residential Dwelling..................................54
Master Thesis topic 36: The Subprime Crises- Real Estate Contagion..................56
Master Thesis topic 37: Shareholder Identity...........................................................57
Master Thesis topic 38: Short Selling........................................................................58
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.
-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:
http://ssm.com/abstract=967430
-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: http://ssm.com/abstract=1014305.
-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.
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.
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.
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):
Jensen, M.C., 1986, Agency Cost Of Free Cash Flow, Corporate Finance, and
Takeovers, American Economic Review, 76(2): 323-329.
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):
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 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 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
Lhabitant (2004). Recent academic work can also be found at www.ssrn.com. 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 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 scholar.google.com and www.ssrn.com. 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:
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:
http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,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:
www.federalreserve.gov/datadownload/Choose.aspx?rel=H.8
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:
www.chicagofed.org/economic_research_and_data/commercial_bank_data.cfm
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 http://econ.worldbank.org/programs/finance.
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 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 http://www.princeton.edu/~markus/
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
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.
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.
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:
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)
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)
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?
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
http://ssrn.com/abstract=309589).
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
http://ssrn.com/abstract=309589).
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.
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:
http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,content
MDK:20345037~pagePK:64214825~piPK:64214943~theSitePK:469382,00.Html
IMF World Economics Outlook provides global macroeconomic data
http://www.imf.org/external/pubs/ft/weo/2009/01/weodata/index.aspx
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
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,