NEWSLETTER of April 12, 2024

The following content has been added at finexpert:

Oliver Wyman
WIE FINANZIEREN AUTOMOBILZULIEFERER DIE TRANSFORMATION?
Ever stricter lending criteria and higher interest rates pose an existential threat to automotive suppliers. The necessary cost-intensive transformation to electromobility is made even more difficult by historically low margins. Without countermeasures, there is a risk of a significant increase in insolvencies. A convincingly communicated and sustainable strategy on the part of suppliers is crucial for access to financing. Banks could improve the situation if they took a more differentiated view of the automotive sector. >more

Deutsche Bank Research
STARKE RISIKOKAPITALMÄRKTE: VON ZENTRALER BEDEUTUNG FÜR GRÜNE UND DIGITALE INNOVATIONEN
Venture capital markets play a key role in financing the innovations needed for the green and digital transitions. They identify promising start-ups and provide them with funding so that they can realize their growth potential. In the EU, the volume of newly invested venture capital (VC) has increased almost fivefold in the last decade. Nevertheless, the market in Europe remains much smaller than in the US, making it more difficult for young European companies to grow than their US counterparts. To continue to grow, the venture capital market in the EU must overcome not only the current slump, but also structural problems in fundraising, larger financing rounds and the exit environment. >more

Deutsche Bank Research
EUROPEAN BANKS MAKE SOME PROGRESS IN DIVERSIFYING THEIR SOVEREIGN EXPOSURES
In the European Economic and Monetary Union, banks' holdings of sovereign debt remain in focus, not least because of the ECB accelerating the reduction of its sovereign bond portfolio this year. Quantitative tightening at a time of significant public-sector refinancing needs requires other investors to pick up the baton. Will banks resume their traditional role as anchor investors? Or will they remain reluctant to increase their holdings, as they were in 2023? Moreover, differences in the sovereign exposures across national banking sectors – especially with regard to “home bias” – have been an obstacle to completing the Banking Union with a European Deposit Insurance Scheme (EDIS), and thus continue to receive attention from policymakers. The good news, as we show in this report, is that European banks in aggregate made some progress in 2023 toward diversifying their claims on governments. >more

Institut der deutschen Wirtschaft (IW)
ANALYSE ASYMMETRISCHER PREISENTWICKLUNGEN IM WOHNIMMOBILIENMARKT
This article evaluates the structural composition of real estate price trends in 70 major cities in Germany for the period 2015 to 2023. To this end, so-called convergence clubs of urban housing markets are identified for three submarkets of the housing market. >more

SIZE DISCOUNT AND SIZE PENALTY: TRADING COSTS IN BOND MARKETS
Gabor Pinter, Chaojun Wang, and Junyuan Zou
2023
We show that larger trades incur lower trading costs in government bond markets (“size discount”), but costs increase in trade size after controlling for clients’ identities (“size penalty”). The size discount is driven by the cross-client variation of larger traders obtaining better prices, consistent with theories of trading with imperfect competition. The size penalty, driven by the within-client variation, is larger for corporate bonds, during major macroeconomic surprises and during COVID-19. These differences are larger among more sophisticated clients, consistent with information-based theories. >more

UNSMOOTHING RETURNS OF ILLIQUID FUNDS
Spencer J. Couts, Andrei S. Gonçalves, and Andrea Rossi
2024
Funds that invest in illiquid assets report returns with spurious autocorrelation. Consequently, investors need to unsmooth returns when evaluating the risk exposures of these funds. We show that funds investing in similar assets have a common source of spurious autocorrelation, which is not addressed by commonly-used unsmoothing methods, leading to underestimation of systematic risk. To address this issue, we propose a generalization of these unsmoothing techniques and apply it to hedge funds and commercial real estate funds. Our empirical results indicate our method significantly improves the measurement of risk exposures and risk-adjusted performance, with stronger results for more illiquid funds. >more