KREDIT und KAPITAL - Issue 2/2006


Contents


Policy Issues

Schnabel, Isabel and Hakenes, Hendrik
Braucht Deutschland eine "starke private deutsche Bank?"


Articles

Füss, Roland and Andrea Alexandra Nowak
Venture Capital Cycles: Empirical Evidence from the USA

Adam-Müller, Axel F. A. and Pong Wong, Kit
Restricted Export Flexibility and Risk Management with Options and Forward Contracts

Reichardt, Rolf
Kapitalmarktorientierte Risikosteuerung in Banken: Marktwertsteuerung statt Marktzinsmethode


Report

Viebig, Jan and Poddig, Thorsten
Hedgefonds-Strategien und Asset-based Style-Faktoren


Book Reviews

Lucius, Otto (Hrsg.)
Die Zukunft der Bankbetriebslehre. Festschrift für Hans Krasensky zum 100. Geburtstag (Jan Körnert)


Summaries

Schnabel, Isabel and Hakenes, Hendrik
„Is there a Need for a “Strong Private German Bank”? On the Desirability of National Champions in the Banking Sector”

Top politicians of Germany’s main parties publicly propagate the promotion of national champions in the banking sector. Other institutions demand the consolidation of the banking sector as well, pointing to the meagre profitability and the low concentration of German banks. We argue that the formation of national champions is not a reasonable response to the problems faced by the banking sector in Germany because the potential economic benefit comes at substantial costs. In particular, national champions might run the risk of impairing systemic stability if it is expected that such champions will be subject to implicit state guarantees. Any political interference in the consolidation process in the banking sector would make these effects more acute and distort entrepreneurial decision-making by banks. For this reason, such interference must be strictly ruled out.

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Füss, Roland and Andrea Alexandra Nowak
“Venture Capital Cycles: Empirical Evidence from the USA”

Due to their high innovative ability and flexibility, young technology ventures facilitate structural change in the economy. This results in the creation of new jobs and the opening up of the new sectors. In this context, venture capital companies play a central role by providing new firms with the required funds. However, the objective of venture capital investments is more than simply making venture capital available. Venture capitalists also help businesses to develop their management team, and enter into a temporary strategic partnership with the capital acquirer by taking seats on the board of the company. Venture capital financing represents a typical time-limited minority stake that is executed in iterative stages.

The innovative thrust of this study is not only to identify significant cyclical patterns in the US venture capital market but also to ascertain the length of economic cycles, an aspect often neglected in previous studies. By way of contrast, the research shows that both the ARIMA technique and spectral analysis capture short-term fluctuation of between two and three quarters, corresponding to cycle length as identified by Gehrig and Stenbacka (2004) during the stage of project selection. The second cycle of 7.69 quarters located in this study is associated with the theory of the full investment process, which involves a period of between two and seven years. Overall, there is evidence that the US venture capital market constitutes a fully developed market with cyclical properties. Thus, it is expected, that the current market consolidation will once again increase in intensity. In addition, venture capital investments are investigated for a range of different industries, with contradictory results. While one low and one high cycle dominates the time series for some sectors, stable cycles occurred more often in other industries. (JEL C22, E32, E 44, G24))

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Adam-Müller, Axel F. A. and Pong Wong, Kit
“Restricted Export Flexibility and Risk Management with Options and Forward Contracts”

This paper examines the interaction between operational and financial hedging in the context of a risk averse competitive exporting firm under exchange rate uncertainty. The firm is export-flexible in that it makes its export decision after observing the realized spot exchange rate. However, export flexibility is limited by certain minimum sales requirements due to long-term considerations. This creates a piecewise linear exchange rate exposure. If the firm is allowed to use customized derivatives contracts, its optimal hedge position can be replicated by selling currency forward contracts and call options. If the firm is restricted to use forward contracts as the sole hedging instrument, optimal output is unambiguously smaller. Introducing currency call options thus stimulates production. An extension analyzes more general types of exchange rate exposure. (JEL F31, D 21, D 81)

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Reichardt, Rolf
„Capital Market-oriented Risk Management by Banks: Market Valuation instead of the „Marktzinsmethode““

This article casts doubt on the „Marktzinsmethode“ (a capital market-oriented transfer pricing method) as a basis for the dual risk management of credit and market price risk. The credit risks faced by a bank imply credit risk-induced market price risks and bank specific funding costs. While credit risk-induced market price risks are not identified in the dual risk-management, bank specific funding costs are identified but not correctly allocated within banks.

The basic model of the „Marktzinsmethode“ does not provide any solutions to these problems. In contrast to this, mismanagement impulses can be avoided from the outset by consistent market valuation (mark to market) of all financial instruments. Looking forward, first considerations are developed with respect to the implementation of a comprehensive market value based risk management in banks and as an example a suitable valuation model is presented.

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Reports

Viebig, Jan and Poddig, Thorsten
“Hedge Fund Strategies and Asset-based Style Factors”

Traditional factor models are unsatisfactory for explaining hedge-fund returns because hedge funds act in accordance with dynamic trading strategies and because the returns they produce correlate poorly with those of traditional asset classes. But hedge funds do not all generate returns, high in absolute terms, without systematic risks being accepted in this regard. They show strong systematic risks that are strategy-specific in nature, however. For this reason, a precise (qualitative) analysis of the strategies applied by hedge funds is necessary in order to identify the type of such systematic risks. Assed-based Style (ABS-)factor models can be used for making a subsequent quantitative analysis on the basis of those strategies. However, such models include a number of special characteristics such as the type and design of factors or the need to deal with non-linear properties. The benefit of such ABS factor models is substantial, because ABS factors permit to explain the systematic risks of individual hedge fund strategies and to model strategy-specific hedge fund benchmarks. Within the framework of a qualitative analysis, this article initially shows the kind of systematic risks involved in hedge funds. It subsequently submits to a critical discussion of ABS factor models as possible approaches to a quantitative analysis of returns and risk structures. The conclusion to be drawn therefrom is that a comprehensive and satisfactory explanation of the structures of returns and risks of hedge funds are still in their infant shoes, but that multiple insights have already been obtained. This article also shows possible starting points for future research activities.

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