Professur Finance

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http://hdl.handle.net/2003/33650

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Essays in finance: Generative probabilistic models, firm efficiency, and investor relations
(2022-09-19) Krause, Miguel; Posch, Peter N.; Hellmanzik, Christiane
This dissertation consists of four independently written essays dealing with inference and prediction of financial data sets. The first part of this dissertation focuses on the inference element and contains two chapters that explore the question of how financial markets priced companies’ stocks during the market collapse caused by the COVID-19 pandemic in the beginning of 2020. As the COVID-19 pandemic and the subsequent economic lockdown represented one of the most impacting exogenous shocks to financial markets in recent history, it led to a huge increase in uncertainty about a firm’s future cash flows. This environment thus allowed us to examine the drivers and characteristics that may make firms more resilient to crises and help to reduce investor uncertainty. The last two essays of this dissertation move away from the inference element and deal with the prediction of financial time series data using unsupervised machine learning methods. In the finance literature so far, machine learning models are mainly used for discriminative tasks, such as point forecasts or classifications. However, in this dissertation, we show how the finance literature can be extended by using generative probabilistic models, which aim to learn the underlying distribution of the data and are able to generate realistic artificial samples. Since time series in the real world are highly stochastic, probabilistic sampling has the advantage of providing a complete distribution of possible scenarios instead of a single prediction.
Essays in finance: Sustainability in credit risk, carbon risk and portfolio theory
(2022) Aslan, Aydin; Posch, Peter N.; Pott, Christiane
In the ongoing and aggravating global climate crisis, the effects of ecological disruption on firms, investors, and society as a whole are being increasingly investigated in the literature. Physical risks, such as increasing average temperatures or rising sea levels, are believed to be the top climate-related risk factor for investors over a time horizon of 30 years and motivate the currently increasing demand for green assets. However, the empirical literature is divided on how green assets perform in comparison to non-green assets, and whether the firm performance is influenced by corporate social performance. Furthermore, the impact of implemented measures for greenhouse gas emission reduction on financial markets remains ambiguous. The underlying thesis covers these aspects and contributes to the growing strain of literature on sustainable finance. The first chapter investigates the relationship between ESG ratings and the probability of corporate credit default, while the second chapter focuses on volatility spillover effects between carbon emission allowance future prices and European stock market sector indices. The last chapter contributes to the understanding of how investors value sustainability under the classical expected utility theory using varying levels of risk aversion.
How do investors value sustainability?
(2022-11-30) Aslan, Aydin; Posch, Peter N.
We investigate how an investor’s preference for sustainable assets in the portfolio varies for differing levels of risk aversion. Using a sample of 411 publicly listed firms in the S&P 500, we calculate financial and sustainability returns, on which the investor’s utility depends. We approximate the investor’s preference by the exponential and s-shaped utility function and optimize with regard to the sustainability preference. We find that with increasing levels of risk aversion, both minimum-variance and maximum Sharpe ratio type investors seek to incorporate sustainable assets in the portfolio.
Do firms hedge in order to avoid financial distress costs? New empirical evidence using bank data
(2020-08-11) Hahnenstein, Lutz; Köchling, Gerrit; Posch, Peter N.
We present a new approach to test empirically the financial distress costs theory of corporate hedging. We estimate the ex-ante expected financial distress costs, which serve as a starting point to construct further explanatory variables in an equilibrium setting, as a fraction of the value of an asset-or-nothing put option on the firm's assets. Using single-contract data of the derivatives' use of 189 German middle-market companies that stems from a major bank as well as Basel II default probabilities and historical accounting information, we are able to explain a significant share of the observed cross-sectional differences in hedge ratios. Hence, our analysis adds further support for the financial distress costs theory of corporate hedging from the perspective of a financial intermediary.
Essays in finance: The impact of trust, firm efficiency, investor relations, and operational leanness on financial markets
(2021) Neukirchen, Daniel Lukas; Posch, Peter N.; Pott, Christiane
This dissertation consists of four essays and aims to contribute to a better understanding of financial markets and investor behavior. The first three essays focus on the effects of the COVID-19 crisis, which constituted an exogenous shock to a firm’s future cash flows and thus led to market collapse. Given the dramatic downturn, the COVID-19 crisis presents an opportunity to examine how market participants evaluate the importance of certain firm characteristics for the firm’s ability to generate future cash flows and also how characteristics of countries and societies influence capital market outcomes. In Essay 1, we therefore provide evidence that societal trust and trust in the country’s government significantly reduced stock market volatility in reaction to COVID-19 case announcements during the crisis period. We relate this result to trust alleviating uncertainty among investors about the country’s ability to overcome the crisis. In Essay 2, we show firms which use their resources more efficiently to experience higher returns during the crisis. We argue that the outperformance of efficient firms relates to these firms having less risky expected cash flows and thus a lower risk of default, which is consistent with the view in Frijns et al. (2012). In Essay 3, we study whether having better-quality investor relations (IR) helps to alleviate information frictions among market participants and is thus valuable for firms. The results suggest that firms with better-quality IR experienced higher returns, retained more incumbent institutional investors, and also attracted more new institutional investors during the crisis period. Finally, Essay 5 moves away from the topic of the COVID-19 crisis, but it also contributes to a better understanding of financial markets and investor behavior. In this last essay, we examine whether institutional investors view operational leanness as a competitive advantage resulting in higher expected cash flows. The results provide evidence that institutional investors generally appear to prefer lean firms since the reduction in operational slack is associated with a cost advantage. However, the results also suggest that institution types differ substantially in how they evaluate operational leanness because of market and information frictions.
Are sustainable companies more likely to default? Evidence from the dynamics between credit and ESG ratings
(2021-07-31) Aslan, Aydin; Poppe, Lars; Posch, Peter
We investigate the relationship between environmental, social and governance (ESG) performance and the probability of corporate credit default. By using a sample of 902 publicly-listed firms in the US from 2002 to 2017 and by converting Standard & Poor’s credit ratings into default probabilities from rating transition matrices, we find the probability of corporate credit default to be significantly lower for firms with high ESG performance. Furthermore, by expanding the time window in our regression analysis, we observe that the influence of ESG and its constituents strongly varies over time. We argue that these dynamics may be due to financial and regulatory shocks. In a sector decomposition, we additionally find that the energy sector is most influenced by ESG regarding the probability of corporate credit default. We expect an increasing availability of ESG data in the future to reduce possible survivorship bias and to enhance the comparison between ESG-rated and non-ESG-rated firms.
ESG ratings and stock performance during the COVID-19 crisis
(2021-06-25) Engelhardt, Nils; Ekkenga, Jens; Posch, Peter
We investigate the association between Environmental, Social, and Governance (ESG) ratings and stock performance during the COVID-19 crisis. Although there is mixed evidence in the literature whether ESG is valuable in times of crisis, we find high ESG-rated European firms to be associated with higher abnormal returns and lower stock volatility. After decomposing ESG into its separate components, we find the social score to be the predominant driver of our results. Further, we argue that ESG is value-enhancing in low-trust countries, and in countries with poorer security regulations and where lower disclosure standards prevail.
Essays in finance: the impact of the COVID-19 crisis on financial markets
(2021-04-14) Engelhardt, Nils; Posch, Peter N.; Pott, Christiane
The unexpected and exogenous shock of the COVID-19 health crisis in the beginning of 2020 had dramatic consequences for financial markets. The world’s leading stock markets were on an all-time high until mid-February and collapsed by roughly 30% within a few days. This presents an opportunity to investigate reasons, which might have reinforced the stock market crash, and also those characteristics, which might have made specific firms more resilient to the crisis. The underlying thesis covers these two aspects and contributes to the evolving strand of literature. While the first two chapters investigate the impact of the COVID-19 pandemic on financial markets on country-level, the remaining three chapters contribute to the growing body of research on characteristics which make firms more immune to the COVID-19 crisis.
Managerial behavior in fund tournaments—the impact of TrueSkill
(2021-01-09) Swade, Alexander; Köchling, Gerrit; Posch, Peter N.
Measuring mutual fund managers’ skills by Microsoft’s TrueSkill algorithm, we find highly skilled managers to behave self-confident resulting in higher risk-taking in the second half of the year compared to less skilled managers. Introducing the TrueSkill algorithm, which is widely used in the e-sports community, to this branch of literature, we can replicate previous findings and theories suggesting overconfidence for mid-years winners.
Essays in finance: corporate hedging, mutual fund managers’ behavior, and cryptocurrency markets
(2021) Köchling, Gerrit; Posch, Peter N.; Strese, Stefen
Synergies, cooperation and syndication in venture capital game, portfolio optimization with genetic algorithms and asset auctions: essays in finance
(2020) Radak, Vladislav; Posch, Peter; Pott, Christiane
This thesis looks at all scientific phenomenon of financial decision-making from both the empirical and theoretical side, with empirical trying to strengthen theoretical assumptions or even to expand it. In chapter 2, we propose a two-stage financing model with three players that consider the output elasticities of all parties using the Cobb-Douglas utility function. Theoretical findings in chapter 2 suggest that a higher complementary coefficient between players on both stages can lead to a higher level of effort from all three players, taking game dynamics away from the moral hazard problem and causing higher exit stage payoffs. Previous track record of the angel and VC and output elasticity of the entrepreneur, combined with the company’s shares offered the angel and VC, impact the three-player game dynamic, causing some players to reduce their efforts after specific funding rounds. Our empirical results show that VC syndication increases the average amount of funding offered to entrepreneurs as well as that syndicated ventures have a higher number of funding rounds, resulting in a higher number of possible entry-points provided by those start-ups. Our results in chapter 4 suggested that a two-point GA that minimized the risk for a given level of expected return slightly outperformed the results of the SPEA2. Compared with the previous industry standard for risk measure—Value-at-Risk, we show that both frontiers differed, especially at the low return side. The converted Value-at-Risk solutions were not evenly distributed along the efficient frontier and even inadequate for some ES values. In chapter 5, we use the game theory approach to examine the first-price package auction design for illiquid asset auctions. Our theoretical work suggests that every case that can be presented as a two or three asset game, as well as longer games that can be presented as two and three asset subgames, has a strong equilibrium if the bidders’ budgets and utilities for every asset are common knowledge.
Essays in finance: initial public offerings and risk backtesting
(2020) Schmidtke, Philipp; Posch, Peter N.; Pott, Christiane
Asset prices are a central research object in financial economics. In this thesis, Chapters 2 and 3 are concerned with studying the initial public offering (IPO), the process by which previously private firms offer their shares to the general public for the first time, eventually resulting in a first stock exchange valuation. Chapter 2 proposes a new measure of investor sophistication using the internet log file data set of the United States Securities and Exchange Commission (SEC) Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system and investigates the role of sophisticated and unsophisticated investor attention for IPO pricing. Chapter 3 defines a daily SEC workload measure at the SEC industry office level and performs an analysis of the SEC filing review process for IPOs, including textual analysis of SEC comments. The dissertation uses this to examine the interaction among high SEC workload, filing review outcomes, and IPO pricing. The second main focus of this dissertation, set out in Chapters 4 and 5, is backtesting of market risk forecasts for financial returns, which is a central concern of risk managers as soon as an asset is traded publicly. Chapter 4 proposes novel Value-at-Risk (VaR) backtests for the independence property of VaR forecasts using the extremal index, which is a concept from extreme value theory. The tests are analyzed and compared to existing alternatives using Monte Carlo simulations. Chapter 5 conducts a critical analysis of volatility forecasting capabilities of a large set of Generalized Autoregressive Conditional Heteroscedasticity (GARCH)-type models for returns on the Bitcoin cryptocurrency, known for its extreme price changes. Model confidence sets are calculated for different loss functions, volatility proxies, and significance levels to obtain models with equal predictive ability.
What drives stocks during the Corona-crash? News attention vs. rational expectation
(2020-06-19) Engelhardt, Nils; Krause, Miguel; Neukirchen, Daniel; Posch, Peter
We explore if the corona-crash 2020 was driven by news attention or rational expectations about the pandemic’s economic impact. Using a sample of 64 national stock markets covering 94% of the world’s GDP, we find the stock markets’ decline to be mainly associated with higher news attention and less with rational expectation. We estimate the economic cost from the news hype to amount to USD 3.5 trillion for the US and USD 200 billion on average for the rest of the G8 countries.
Essays in finance: wrong-way risk, jumps and stochastic volatility
(2019) Müller, Janis; Posch, Peter N.; Jung, Philip
The main focus of this thesis is about understanding the behavior of asset prices and asset returns regarding tail events, in the light of time-varying stochastic volatility and with respect to market efficiency. Thus, the contribution of this thesis is twofold: The first part deals with topics related to risk management whereas the second part deals with topics related to asset pricing. With new regulations like the credit valuation adjustment (CVA) the assessment of wrong-way risk (WWR) is of utter importance. Wrong-way risk means a negative dependence of the exposure to a counterparty on the counterparty’s credit quality. Thus, the first paper studies the co-movement of counterparty credit risk and returns of different asset classes (equity, currency, commodity and interest rate). Extreme movements in asset prices are often characterized by jumps and drying up liquidity. The second paper aims to improve the understanding of the (unconditioned) link between jumps and liquidity in chapter 3. In the third paper the dynamics of asset prices are time-changed to study the influence of stochastic volatility on asset prices in a parameter-free approach. Applying the time-changing technique avoids to use a specific process for volatility to study the impact of stochastic volatility on asset prices. Firstly, formulas for the expected return of assets and the risk-free rate are derived. It is noteworthy that the risk-free rate becomes stochastic under the time-change. Based on the theoretical findings, stochastic consumption volatility is explored considering prevailing puzzles. Secondly, a factor is constructed mimicking the effect of stochastic volatility of the market portfolio on asset prices extending the five-factor model of Fama and French (2015). Considering anomalies targeted by existing factor models, the constructed factor especially helps to describe cross-sectional excess returns of portfolios formed on size and momentum. This finding indicates that the momentum effect is partly explicable by stochastic volatility. The fourth paper deals with ambiguous volatility as an explanation for time-variation in the market’s risk premium. Finally, the fifth paper is about the currently discussed topic of market efficiency regarding cryptocurrencies. Using three delay measures as given in Hou and Moskowitz (2005) it is shown that news, affecting the cryptocurrency market, are much faster incorporated in prices during the last three years indicating that the cryptocurrency market becomes more efficient over time. Furthermore, the price delay is mainly driven by liquidity which is studied in the cross-section of 75 cryptocurrencies.
Essays on corporate social and resource responsibility
(2018) Bergmann, Alexander; Posch, Peter N.; Flatten, Tessa
This thesis "Essays on Corporate Social and Resource Responsibility" is based on three research papers, organized in three chapters (chapters 2, 3 and 4). Chapter 1 introduces the topic and overall research questions. The final chapter 5 concludes on the overall project. The thesis discusses CSR and sustainable development on a global and regional scale by using different methodological approaches. lt emphasizes the holistic engagement needed by firms irrespective of their size to ensure sustainable development. To that end, chapter 2 provides a conceptual framework for firms to organize their CSR activities with regards to stakeholder requirements. lt outlines the necessity for firms to actively take on a CSR agenda if they want to benefit their stakeholders, and thereby, themselves. By clustering companies' CSR agendas within this framework, chapter 2 underlines the necessity to develop a knowledgeable and possibly strategic approach towards CSR and thus contributes to the introduction of social responsibility in organizations. Especially SMEs are increasingly facing stakeholder pressure, notably from their often large-firm customers, to operate sustainably. Due to SMEs' idiosyncrasies and the considerable differences among SMEs and large firms in organizing CSR, chapter 3 takes a closer look on the direct and indirect effects of mandatory CSR reporting on firms of different size in Germany. lt finds firm size plays a role in the evaluation of mandatory reporting, however, only for firms directly affected by reporting requirements. Chapter 3 thus contributes to the understanding of when firm size matters in the case of mandatory SR and underlines the role of organizational resources and capabilities as well as the special position of SMEs. SMEs are not generally worse endowed to handle demands for formalized CSR. Research on SMEs and their access to (formal) CSR yields mixed results, however. As SMEs contribute the major share to the triple bottom line of environmental, social and economic aspects, chapter 4 therefore discusses formal CSR in SMEs and the associated relevance of selected sustainability reporting frameworks in depth. lt explains firms' current and future reporting activities and outlines the relevance of reporting frameworks for SMEs and large firms. Chapter 4 concludes firms can and should proactively engage in formalized CSR, irrespective of firm size and background, to contribute to the sustainability agenda. The detailed analysis and discussion of developments across selected reporting frameworks sheds light on their relevance for current and future reporting of SMEs and large firms. Finally, chapter 4 argues for regulatory support especially for SMEs to be socially and environmentally responsible. The thesis concludes greater engagement in sustainability matters is needed by companies regardless of their size. Organizations, governmental as well as nongovernmental, should support firms in formalizing their engagement.
Mandatory sustainability reporting in Germany: does size matter?
(2018-10-26) Bergmann, Alexander; Posch, Peter
This article studies how German firms evaluate a recent national corporate social responsibility (CSR) law based on a European Union directive and the burden they expect regarding their organizational responsibilities due to mandatory sustainability reporting. One hundred and fifty-one firms of different sizes directly or indirectly affected by the law are included in the survey and their responses empirically analyzed using two-tailed t-tests and simple linear regression. Anchoring the discussion in stakeholder theory and the small and medium-sized enterprise (SME) literature while considering large-firm idiosyncrasies, the results show differing effects on SMEs and large firms as well as firms which are directly and indirectly affected. Findings show that firm size only matters for the evaluation of the law by directly affected firms, while size does not matter in the case of indirectly affected firms. Possible moderators of this evaluation are grounded in the resource-based theory and formalization of CSR. This article contributes to the understanding of when firm size matters in the case of mandatory sustainability reporting and underlines the role of organizational resources and capabilities as well as the special position of SMEs.
Essays on rogue traders and collusive rogue trading: Implications of control balance, organizational misbehaviour, and behavioural patterns of group dynamics
(2018) Rafeld, Hagen; Posch, Peter N.; Pott, Christiane
When analysing great financial disasters of our time, rogue trading and related protagonists come into play immediately. Recent history reveals a series of rogue traders, jeopardizing their employers’ assets and reputation. Rogue trading is a reoccurring phenomenon, gaining immense public attention due to the perceived mismatch between large-scale organizations on the one hand and individual employees bringing these organizations into enormous trouble on the other. It furthermore links to the understanding of fraudsters like rogue traders, embedded in (un)ethical organizational corporate corpuses. Throughout this doctoral dissertation, I use three sources of information for the rogue trading case examination: publicly available investigation reports – prepared and issued by regulatory authorities/supervisors as well as authorized delegates like accounting or law firms engaged by the involved banks – published academic research, and news/media information about fines/regulatory sanctions imposed on affected banks and the prosecution status of individuals involved in the events. I apply a case analysis methodology to all rogue traders, extracting and comparing modus operandi, risk management failures and control weaknesses, as well as early warning signals, before I examine the events from a criminological, organizational, and psy-chological/behavioural sciences perspective. Chapter 1 focusses on Kweku Adoboli at UBS and how he cloned the biggest trading fraud in the history of banking: Jérôme Kerviel’s USD 6.9bn unauthorized trading loss at Société Générale. I conduct a read across, comparing Adoboli and Kerviel with the ‘godfather’ of all rogue traders, Nicholas (‘Nick’) Leeson and his ruin of Barings Bank. Chapter 2 and 3 employ Charles Tittle’s control balance theory (CBT) to explain rogue trading as a special form/subset of white-collar and corporate crime from a criminological per-spective. I use CBT to analyse the anatomy of the Leeson, Kerviel, and Adoboli case, totalling in an accumulated trading loss of USD 10.5bn. I draw conclusions regarding the explanatory power of CBT for rogue trading activities. Chapter 4 analyses instances of unauthorized acting in concert between traders, their su-pervisors, and/or firm’s decision makers and executives, resulting in collusive rogue trading (CRT). I explore organizational misbehaviour (OMB) theory and explain three major CRT events at National Australia Bank (NAB), JPMorgan with its London Whale, and the interest reference rate manipulation/LIBOR scandal through a descriptive model of organiza-tional/structural, individual, and group forces. The model draws conclusions on how banks can set up behavioural risk management and internal control frameworks to mitigate potential CRT. In the concluding chapter 5, I explain one additional major CRT event, the foreign exchange rate manipulation/forex scandal, through an extended descriptive OMB model, in which organizational/structural, individual, and group forces are influenced by behavioural patterns of conscious and unconscious group dynamics: groupthink and defence mechanisms minimizing moral dissonance, i.e. wilful blindness and ethical/moral blindness, morale silence/muteness, and moral neutralization. The model draws conclusions on adverse settings of organizational culture and how banks can prevent collective unethical behaviour.
Essays in finance: time-frequency decompositions and the impact of surprise
(2019) Paraskevopoulos, Timotheos; Posch, Peter N.; Georgiou, Nadine
In the first part of this thesis, we study the informative value of time-frequency decompositions based on wavelets. In chapter 2 we address the challenge of forecasting major stock indices. For the binary classification task, we identify three wavelet filters out of fifteen, namely $D4$, $D6$ and $CF6$, which outperform the naive approach. We exemplify the performance of the forecasting algorithm by simulating a trading application in which the wavelet-based approach outperforms the naive strategy by a factor of about two in terms of Sharpe ratio. In chapter 3 we study the transmission processes between the European stock markets and the nominal European exchange rate. To effectively distinguish between contagion and interdependence we estimate the spectral characteristics of the time series as a function of time and frequency using a continuous wavelet transform. This approach allows to reveal linkages and co-movement patterns, including lead-lag relationships, between periodic components. The empirical results support both cyclical and anti-cyclical relationships between the time-series while existing casual and reverse casual relation vary across scale and time. We strongly emphasize the limitations of a bivariate approach and encourage the conduction of a multivariate analysis to revisit our findings. In the second part of the thesis, namely chapter 4, we aim to quantify the level of surprise in events published on Twitter. The proposed methodology maps the informational content of every Twitter account belonging to at least one S\&P500 constituent into a network. This approach allows to observe the formation of events and to quantify its propagation on an aggregate level. In a regression analysis, we investigate whether the proposed surprise metric has any explanatory power for the SP500 logarithmic returns and volatility. We find that an increase in the surprise index has an inverse effect on daily returns and a positive impact on the daily volatility. Moreover, the results support the hypothesis of a pre-report effect for both the return and volatility models. Future work might also explore the limits of a multivariate approach to analyze directional interdependence and contagion patterns at different time scales. Considering deep neural network embeddings to reduce the dimensionality of frequency decompositions is one of the next steps in this research.
Learning algorithms, and current developments – banking at the crossroads
(2017) Erhardt, Joachim; Pott, Christiane; Hoffjan, Andreas
Since the 2008 financial crisis much discourse questioned the relevance of the banking industry to society; in particular given sovereign bailouts of failed banks. Such questions provide the context in which this thesis covers four key topics for wholesale banking in the future. Firstly, in relation to efficiency improvements in the wholesale banking model and promotion of market liquidity, ‘Machine Learning’ techniques were applied to predict the behaviour of wholesale customers in addition to the financial markets they operate in. Central to the analysis is the design of predictive features i.e. the independent variables. In relation to the customer analysis, institutional data was applied to forecast ‘when’ and ‘what’ customers will trade. Accuracies range from 43% to 95% (up to a 17% improvement versus customers’ historic mean). In relation to market prediction, results varied substantially across feature sets and markets. The concept of ‘Genuine Model Robustness’ is proposed by which statistical importance and improvement scores are applied as a measure for significance for the underlying feature mechanic. Secondly, in relation to the mitigation of bank failure, the impact of the new ‘Bail-in mechanism’ introduced by the EU was analysed. In particular the effects of the new regime on bank funding costs and the corresponding interplay between increased covered bond issuance and ‘Asset Encumbrance’ was considered. Thirdly, the ethical dimension of ‘Sustainability’ in investing was reviewed. Via a proposed ‘Green Covered Bond’ framework (with eligibility standards and enhanced credit quality) green projects can benefit from the inherent funding advantages of the covered bond market. Finally, the stimulus effect of finance on the real economy was considered, in particular the influence on ‘Resource Availability’ via international trade from cheaper and reliable financing. Through fixed and pooled effect regression analysis a statistically significant negative relationship was established between availability of base metals and finance costs.
Essays in finance: aggregating distributions and detecting structural breaks
(2017) Ullmann, Daniel; Posch, Peter; Krämer, Walter
Many quantitative analyses try to estimate an effect, which is measured by aggregating the underlying distribution in a suitable way. For many econometric models the consistency of the true model is a necessary condition, that means one does not find structural breaks within the model during the observations. The present thesis addresses these two questions. The first part of this thesis is about an accurate estimation of the covariance/correlation matrix and detecting structural breaks within these dependency structures. Chapter 2 addresses the problem of estimating the covariance/correlation matrix with limited observations. Estimators with and without the normality assumption of returns are used and the errors of covariance estimation and correlation estimation compared. It is analyzed, if estimation improvements transfer to economic improvements measured by the Sharpe ratio and annualized volatilities of minimum-variance portfolios. Significant out-performance of some shrinking estimators in the economic sense are found, which seem to depend weakly on the normality assumption. Using a shrinking estimator with a scaled identity matrix as shrinking target, the Sharpe ratio increases by a factor of about two. Chapter 3 tests for a constant correlation structure without any model assumption. These model free tests for constant parameters often fail to detect structural changes in high dimensions. In practice this corresponds to a portfolio with many assets and a reasonable long time series. The dimensionality of the problem is reduced by looking at a compressed panel of time series obtained by cluster analysis and the principal components of the data. With this procedure tests for constant correlation matrix can be extended from a sub portfolio to whole index, which we exemplify using a major stock index. The second part of this thesis deals with the general problem of aggregating distributions. Using conditional first moments, one can ask the question: am I better off than the others in the population? Chapter 4 deals with this question in the context of income distributions and proposes metrics for skewness and spread, based on this internal view. Using them, the trajectories of European countries from 2005 to 2013 are tracked in a phase plane. This movement enables a grouping into three groups of inequality risers, fallers and a mixed group. In a regression analysis determinants of the Gini coefficient are examined to check if these effects translate to the two metrics. Chapter 5 turns to one source of income, investment income and the question arising 1 from the perspective of a fund manager: How does a performance metric look like and would fund managers be ranked differently when using different performance metrics? The originated performance criterion w is more consistent with the implicit Friedman- Savage utility ordering. It weights the lower versus upper conditional expected returns, while a dual spread or dispersion metric d also exists. A point of departure is the conventional Sharpe performance ratio, with the empirical comparisons extending to a range of existing performance criteria. In contrast to existing metrics, the proposed performance metric W results in different and more embracing rankings.

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