How best to measure banking competition? The empirical banking literature typically resorts to well-known concentration measures such as the Herfindahl–Hirschman index, or performance indicators like the Lerner or Boone indexes. While these have their merits, none of them explicitly takes into account that banks may actively compete with some banks but not with others. This chapter presents micro evidence on the determinants of such dyadic banking competition, and argues that this concept can advance our understanding of how banking competition affects firms’ access to credit.
Many assets derive their value not only from future cash flows but also from their ability to serve as collateral. In this paper, we investigate this collateral premium and its impact on asset returns in an infinite-horizon general equilibrium model with heterogeneous agents facing col- lateral constraints for borrowing. We document that borrowing against collateral substantially increases the return volatility of long-lived assets. Moreover, otherwise identical assets with different degrees of collateralizability exhibit substantially different return dynamics because their prices contain a sizable collateral premium that varies over time. This premium can be positive even for assets that never pay dividends.
Based on a large international survey we analyze how German- French- and Italian-speaking Swiss differ in their investment decision behavior and competence as compared to their closest neighbors abroad speaking the same language. Although language may be closer to the individual self than the country of residence, we find that there are greater similarities in the decision behavior of Swiss speaking different languages than between Swiss and their linguistically closest neighbors abroad. These similarities hold also for the investment competence. We conclude that there is Swissness in the decision behavior and in the investment competence, which most likely has cultural origins, as it cannot be explained by demographic and socio-economic similarities between the regional samples.
The paper contributes to the literature on corporate cash holdings by showing that there is a financial markets channel that affects corporations’ cash holdings. Leaning on the literature on stock price feedback to firm fundamentals, we advance the hypothesis that firms with more liquid stocks hold more cash, ceteris paribus, as ammunition to defend against negative cascades or stimulate positive ones. This contrasts with an alternative view that firms with more liquid stocks are less financially constrained and therefore hold relatively less cash. The evidence favors the cascade/cash as ammunition hypothesis, also with respect to its predictions regarding growth opportunities and cash holdings. As a robustness check, we use the introduction of tick size decimalization in 2001 as a natural experiment where liquidity was exogenously shocked. We also find evidence of two-way causality; a higher level of stock liquidity leads to more cash holdings, and vice versa.
The class of mixed normal conditional heteroskedastic (MixN-GARCH) models, which couples a mixed normal distributional structure with GARCH-type dynamics, has been shown to offer a plausible decomposition of the contributions to volatility, as well as excellent out-of-sample forecasting performance, for financial asset returns. In this paper, we generalize the MixN-GARCH model by relaxing the assumption of constant mixing weights. Two different specifications with time--varying mixing weights are considered. In particular, by relating current weights to past returns and realized (component-wise) likelihood values, an empirically reasonable representation of Engle and Ng's (1993) news impact curve with an asymmetric impact of unexpected return shocks on future volatility is obtained. An empirical out-of-sample study confirms the usefulness of the new approach and gives evidence that the leverage effect in financial returns data is closely connected, in a non-linear fashion, to the time--varying interplay of mixture components representing, for example, various groups of market participants.
