Master Thesis Topics HWS 2020Chair of Finance – Prof. Dr. Erik Theissen

Master Thesis Topics

• Presentation is downloadable on our website:

https://www.bwl.uni-mannheim.de/en/theissen/teaching/master-courses/master-thesis/

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Chair of Finance (I)

• Address:– L 9, 1-2

– Secretary: third floor (“3. OG“)

– Assistants: second, fourth, and fifth floor

• Office hours:– By appointment

– General questions: Please visit our homepage first

– Secretary: Mo-Fr 09.00 – 12.00 am

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Chair of Finance (II)

• Research at the Chair of Finance

a) Market Microstructure

b) Empirical Asset Pricing

c) Blockchain & Cryptocurrency

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Master Thesis Topics

• Prerequisite: – You must have successfully completed one seminar of the area "Banking,

Finance, and Insurance" (Prof. Albrecht, Prof. Bucher-Koenen, Prof. Maug, Prof. Niessen-Ruenzi, Prof. Ruenzi, Prof. Spalt, Prof. Theissen, Prof. Weber/Wimmer).

• The assignment of topics is carried out jointly by the finance area.

• Assignment to the topics will be based on your priority list and the grade in the respective seminar.

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Time Schedule

• Application period:– Wednesday, 09.09.2020 – Friday, 18.09.2020

• Topics Allocation Announcement:– Thursday, 24.09.2020

• Registration Period:– Thursday, 24.09.2020 – Tuesday 29.09.2020

• Starting Date– Tuesday 29.09.2020

• Colloquium– Friday, 27.11.2020 (online via Zoom)

• Submission Deadline– Friday, 29.01.2021

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Guide to Scientific Writing

• An information sheet on writing a seminar paper or a master thesis is provided on our website:

https://www.bwl.uni-mannheim.de/media/Lehrstuehle/bwl/Theissen/Services/Leitfaden_wissenschaftliche_Arbeiten_SeminarMaster.pdf

• Most important rules:– Your thesis should be 45 pages (+/- 10%)

– 50 pages is the absolute maximum

– Tables and figures have to be included in the text (and count towards the page restriction)

– Only supplementary material that is not needed to read and understand the thesis may be collected in an appendix

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Important Remarks

• Plagiarism policy:

– Your master thesis will be analyzed by plagiarism detection software (Turnitin).

– Our chair has a zero-tolerance policy regarding plagiarism.

– Students who submit plagiarized work will be graded with 5.0.

• Language quality:

– Grading of your master thesis takes also into account the language quality.

– Linguistic shortcomings negatively impacts your final grade.

– The master thesis can be either written in English or German.

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Master Topics

Questions ???

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T1. The Financial Implication of Pharmaceutical ProgressLukas Zimmermann

Topic Description• Since the outbreak of the Covid-19 pandemic, many developments could be observed in

financial markets. Among the firms that have been in the focus are those working on a medicaltreatment to cure the disease or a vaccine to protect against the virus. It should be expectedthat both a drug and a vaccine constitute a competitive advantage and result in significantfinancial inflows. This master thesis should investigate the financial implication ofpharmaceutical progress for the developing firms by examining how securities ofpharmaceutical firms react on relevant information. In an efficient market, one would expectthat such information is priced in and that respective firms outperform relevant benchmarks.

• First, relevant (publicly traded) firms that are working on a Covid-19 drug or vaccine should be identified. Subsequently, relevant dates on which those firms announced important information concerning their progress in drug or vaccine development should be determined. This includes the announcement of the plan to develop a vaccine or the availability of a potential drug, important intermediate results of clinical trials, the information of entering a new development stage, or general information concerning the progress.

• Relevant benchmark portfolios should be constructed and the performance of the pharmaceutical firms around the events and generally over time should be examined (standard event study methodology and calendar-time portfolio approach). In a further step, the announcement effect should be compared with effects in the pre-Covid-19 time.

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Starting References• Niederreiter, J. and Riccaboni, M. (2020). The Impact of Product Innovation on Firm Value:

Evidence from the Biopharmaceutical Industry. Working Paper.

• Ding, W., Levine, R., Lin, C. and Xie, W. (2020). Corporate Immunity to the COVID-19 Pandemic, Journal of Financial Economics.

• Meier, J.-M. and Smithy, J. (2020). The COVID-19 Bailouts. Working Paper.

• Vu, J. T., Kaplan, B. K., Chaudhuri, S., Mansoura, M. K. and Lo, A. W. (2020). Financing Vaccines for Global Health Security. Working Paper.

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T1. The Financial Implication of Pharmaceutical ProgressLukas Zimmermann

Topic Description• How does price react to demand or supply shocks? A large body of research has documented

the price pressure effects around index additions and block sales. But some doubt the eventsstudied are contaminated by information about fundamentals.

• A rapidly expanding literature has used the investor flows to and from mutual funds as asource of exogenous price pressure. If the required sales from individual investors aresufficiently large, the funds’ liquidity needs may put downward pressure on prices that isunrelated to the fundamental value of the underlying stocks (Wardlaw, 2020).

• The flow-induced trading, across mutual funds, can have a significant impact on individualstock returns and drive stock prices temporarily away from their information-efficientbenchmarks (Coval and Stafford, 2007). The flow-based mechanism can potentially causestock price momentum (Lou, 2012).

• Savor (2012) finds evidence that investors overreact to non-fundamental shocks that movestock prices.

• The goal of the thesis is to broadly replicate Lou(2012), examining institutional price pressurein equity markets by studying mutual fund fire sale in the US market. A survey on themeasurement of mutual fund pressure should also be included.

• Knowledge of econometric software is appreciated for the thesis.

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T2. Stock returns after no-information shocks: Mutual Fund Flow Pressure Revisit

Mengnan Wu

Starting References• Coval, J., & Stafford, E. (2007). Asset fire sales (and purchases) in equity markets. Journal of

Financial Economics, 86(2), 479-512.

• Frazzini, A., & Lamont, O. A. (2008). Dumb money: Mutual fund flows and the cross-section of stock returns. Journal of financial economics, 88(2), 299-322.

• Lou, D. (2012). A flow-based explanation for return predictability. The Review of Financial Studies, 25(12), 3457-3489.

• Savor, P. G. (2012). Stock returns after major price shocks: The impact of information. Journal of financial Economics, 106(3), 635-659.

• Wardlaw, M. (2020). Measuring mutual fund flow pressure as shock to stock returns. The Journal of Finance. Advance online version. doi: 10. 1111/jofi.12962.

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T2. Stock returns after no-information shocks: Mutual Fund Flow Pressure Revisit

Mengnan Wu

T3. Understanding asymmetric FX volatility around the world

Stefan Scharnowski

Topic Description• Asymmetric volatility – the tendency of asset returns being more volatile when prices decline

than when they increase – is well documented for equities. While there is still some debate onwhere this asymmetry comes from, there is already a rich literature testing competinghypotheses.

• When it comes to foreign exchange markets, asymmetric volatility has also been documented,albeit less frequently. Moreover, its determinants are hardly understood in FX markets,although the currency market is substantially larger by trading volume than all the world’sequity markets combined.

• The aim of this thesis is to first empirically examine exchange rates for asymmetric volatility. Ina second step, potential determinants of this asymmetry will be analyzed.

• The thesis offers an opportunity to conduct original research and learn about advancedmethods in econometrics and data science (e.g., APARCH or LASSO). Though advancedknowledge before to starting the thesis is not required, some prior experience in workingempirically (Stata or R) and e.g. performing regression analysis would be advisable.

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Starting References• Talpsepp, T., & Rieger, M. O. (2010). Explaining asymmetric volatility around the world. Journal of Empirical

Finance, 17(5), 938–956. https://doi.org/10.1016/j.jempfin.2010.08.005

• Horpestad, J. B., Lyócsa, Š., Molnár, P., & Olsen, T. B. (2019). Asymmetric volatility in equity markets aroundthe world. North American Journal of Economics and Finance, 48, 540–554.https://doi.org/10.1016/j.najef.2018.07.011

• McKenzie, M. (2002). The economics of exchange rate volatility asymmetry. International Journal of Financeand Economics, 7(3), 247–260. https://doi.org/10.1002/ijfe.189

• McKenzie, M., & Mitchell, H. (2002). Generalized asymmetric power ARCH modelling of exchange ratevolatility. Applied Financial Economics, 12(8), 555–564. https://doi.org/10.1080/09603100010012999

• Dzieliński, M., Rieger, M. O., & Talpsepp, T. (2018). Asymmetric attention and volatility asymmetry. Journalof Empirical Finance, 45, 59–67. https://doi.org/10.1016/j.jempfin.2017.09.010

• Goddard, J., Kita, A., & Wang, Q. (2015). Investor attention and FX market volatility. Journal of InternationalFinancial Markets, Institutions and Money, 38, 79–96. https://doi.org/10.1016/j.intfin.2015.05.001

• Menkhoff, L., Sarno, L., Schmeling, M., & Schrimpf, A. (2012). Carry Trades and Global Foreign ExchangeVolatility. Journal of Finance, 67(2), 681–718. https://doi.org/10.1111/j.1540-6261.2012.01728.x

• Bekaert, G., & Wu, G. (2000). Asymmetric Volatility and Risk in Equity Markets. Review of Financial Studies,13(1), 1–42. https://doi.org/10.1093/rfs/13.1.1

• Baur, D. G., & Dimpfl, T. (2017). Think Again: Volatility Asymmetry and Volatility Persistence. SSRN ElectronicJournal. https://doi.org/10.2139/ssrn.2806970

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T3. Understanding asymmetric FX volatility around the world

Stefan Scharnowski

T4. Cryptocurrency and Coronavirus Crisis Yanghua Shi

Topic Description• The relatively new asset class of cryptocurrencies, of which Bitcoin is by far the most popular,

has received a lot of attention in recent years, both in the media and in academic research. AsCOVID-19 negatively affects economy and society globally, it is becoming interesting toinvestigate the behaviour of cryptocurrency in this unprecedented global pandemic.

• The thesis contributes to the discussion about the way a global crisis would affectcryptocurrencies by empirically analyzing patterns in cryptocurrency data over the progressionof the pandemic. A focus should be placed on intraday volatility and trading volume.

• Since this is a relatively novel research question, this thesis is especially suited for thosewanting to conduct original research. Some prior experience in working empirically (Stata, R,or Python) would be advisable.

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Starting References• Jabotinsky, H. Y., & Sarel, R. (2020). How Crisis Affects Crypto:

Coronavirus As a Test Case. Available at SSRN 3557929.

• Chen, C., Liu, L., & Zhao, N. (2020). Fear sentiment, uncertainty, and bitcoin price dynamics: The case of COVID-19. Emerging Markets Finance and Trade, 56(10), 2298-2309.

• Mnif, E., Jarboui, A., & Mouakhar, K. (2020). How the cryptocurrency market has performed during COVID 19? A multifractal analysis. Finance Research Letters, 101647.

• https://cointelegraph.com/news/btc-price-back-at-9-000-but-no-coronavirus-isnt-good-for-bitcoin

• https://cointelegraph.com/news/we-may-expect-a-bitcoin-rally-if-coronavirus-breaks-into-a-second-wave

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T4. Cryptocurrency and Coronavirus Crisis Yanghua Shi

T5. Real Effects of the European Sovereign Debt CrisisYannik Schneider

Topic Description• Identify and measure the real effects of the 2008-2012 European sovereign debt crisis

• The economic health of countries, firms and banks is linked through banks’ sovereign debt holdings (“sovereign-bank nexus”) and bank lending

• Banks with high exposures to distressed sovereigns had to cut down lending to firms during the crisis

• The student will be given data on bank-firm relations, bank sovereign exposure, and firm financials

• The thesis is supposed to explore the effect that a banks’ exposure to a distressed sovereigns had on the firms that were affiliated to the bank

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Starting References• Acharya et al. (2018) “Real Effects of the Sovereign Debt Crisis in Europe: Evidence from

Syndicated Loans, The Review of Financial Studies“. Review of Financial Studies

• Becker, Bo and Victoria Ivashina (2017) “Financial repression in the European sovereign debtcrisis“. Review of Finance

• Popov, Alexander A. and Neeltje Van Horen (2013). “The impact of sovereign debt exposure on bank lending: Evidence from the European debt crisis”. Working Paper

• Beck et al. (2018). “When arm's length is too far: Relationship banking over the credit cycle”. Journal of Financial Economics

• Mulier, Klaas, Koen Schoors, and Bruno Merlevede (2016). “Investment-cash flow sensitivity and financial constraints: Evidence from unquoted European SMEs.” Journal of Banking and Finance

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T5. Real Effects of the European Sovereign Debt CrisisYannik Schneider

T6. Wasteful Year-End Spending: New Evidence for the Trump Administration

Can Yilanci

Topic Description• A large part of finance literature deals with financial market participants (e.g. retail and

professional investors or mutual fund managers). There exists considerably less researchconcerning US government representatives and organizations. Regarding the size of thefederal governments budget (USD 4,45 trillion in FY 2019), we, as economists, need tounderstand whether this money is well spent.

• We know that the budgets of many federal organizations expire at the end of the year. Thisencourages them to spend their remaining budget in the last week of the year. Liebman andMahoney (2017) show that federal organizations’ “spending in the last week of the year is 4.9times higher than the rest-of-the-year weekly average”. Further, Liebman and Mahoney(2017) show that year-end projects have a lower quality.

• The aim of the thesis is to replicate the main findings of Mahoney and Liebman (2017). Inaddition, the student should extend the analysis to include the recent years of the TrumpAdministration. In particular, the following questions should be analyzed. Is wasteful year-endspending more severe for the Trump Administration? Do year-end projects face more costand time overruns? And if so, how large is the welfare loss? To measure cost and timeoverruns, the student can use the measures of Decarolis et al. (2020).

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T6. Wasteful Year-End Spending: New Evidence for the Trump Administration

Can Yilanci

Starting References• Bajari, P., S. Houghton, and S. Tadelis. 2014. Bidding for Incomplete Contracts: An Empirical

Analysis of Adaptation Costs. American Economic Review. 104 (4): 1288–1319.

• Bajari, P., and G. Lewis. 2011. Procurement Contracting With Time Incentives: Theory andEvidence. The Quarterly Journal of Economics. 126 (3): 1173–1211

• Decarolis, F., L. M. Giuffrida, E. Iossa, V. Mollisi, and G. Spagnolo. 2020. BureaucraticCompetenceand Procurement Outcomes. The Journal of Law, Economics, and Organization.

• Liebman, J. B., and N. Mahoney. 2017. Do Expiring Budgets Lead to Wasteful Year-EndSpending? Evidence from Federal Procurement. American Economic Review. 107 (11): 3510–3549.

• Giuffrida, L. M., and G. Rovigatti. 2018. Can the Private Sector Ensure the Public Interest?Evidence from Federal Procurement. Working Paper

• Goldman, E., J. Rocholl, and J. So. 2009. Do Politically Connected Boards Affect Firm Value?Review of Financial Studies. 22 (6): 2331–2360.

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T7. Momentum, Liquidity, and Transaction CostsCan Yilanci

Topic Description• Weak form market efficiency is that all information in the time series of past prices is reflected

in the current price (Fama, 1970). Hence, analyzing past prices should not allow to predictfuture returns. In sharp contrast to this concept, strategies that buy past winner stocks and sellpast loser stocks generate significant positive returns (Jegadeesh and Titman, 1993). Thiseffect is commonly known as the momentum effect.

• The momentum effect has not only been discovered in the US but also in an internationalsample of countries and in different asset classes (e.g. see Asness et al. 2013). However,several studies posit that momentum returns are an illusion because momentum strategiesrequire frequent trading in illiquid assets and face high transaction costs (Korajczyk and Sadka,2004, and Lesmond et al., 2004).

• The momentum effect was very significant in the pre-2000 years but the strategy’s returnsdiminished in the post-2000 years (Jegadeesh and Titman, 2011). So do the diminishingreturns coincide with lower transaction costs?

• The student’s task is threefold. First, the student should review the momentum literature.Second, the student should replicate the main findings of Jegadeesh and Titman (1993). Third,the student should analyze liquidity and transaction costs of momentum portfolios.

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T7. Momentum, Liquidity, and Transaction CostsCan Yilanci

Starting References• Asness, C. S., T. J. Moskowitz, and L. H. Pedersen. 2013. Value and Momentum Everywhere.

The Journal of Finance. 68 (3): 929–985

• Jegadeesh, N., and S. Titman. 1993. Returns to Buying Winners and Selling Losers: Implicationsfor Stock Market Efficiency. The Journal of Finance. 48 (1): 65-91

• Jegadeesh, N., and S. Titman. 2011. Momentum. Annual Review of Financial Economics. 3 (1):493-509

• Korajczyk, R. A., and R. Sadka. 2004. Are Momentum Profits Robust to Trading Costs? TheJournal of Finance. 59 (3): 1039–1082.

• Lesmond, D. A., M. J. Schill, and C. Zhou. 2004. The illusory nature of momentum profits.Journal of Financial Economics. 71 (2): 349–380

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T8. All Roads Lead to Rome: How to Estimate BetaCan Yilanci

Topic Description• Besides expected rates of return and volatilities, Welch (2020) describes betas as one of three intrinsically

interesting moments in finance. Beta measures how stocks move relative to the market. Formally, 𝛽𝑖 is

defined as𝐶𝑜𝑣(𝑟𝑖,𝑟𝑚)

𝑉𝑎𝑟(𝑟𝑚), i.e. the covariance of asset i‘s return with the market return divided by the variance of

the market return.

• Ever since the foundation of the Sharpe-Lintner CAPM (Sharpe, 1964; Lintner 1965), beta is used as ameasure to determine stocks’ expected rate of return. Still, scholars propose different ways to estimatebeta and to improve beta estimates. Vasicek (1973) suggests to shrink betas towards the cross-sectionalmean as very extreme betas are more likely to be under-/over-estimated. Dimson (1979) suggests toinclude terms for the lagged market return in the OLS regression when stocks are subject to infrequenttrading. Ang et al. (2006) propose a downside beta. More recently, Frazzini and Pedersen (2014) calculatebetas by separately calculating volatilities and correlations over one-year and five-year horizons. Last butnot least, Welch (2020) suggests to use stock returns that are winsorized. But is there really a procedure toestimate betas that is superior to others?

• The thesis consists of a theoretical and empirical part. In the first part, the student should review theliterature in detail. In the second part, the student should test how the different beta estimates predict theout-of-sample OLS beta. The thesis’ goal is to provide a guideline on how to measure beta with respect tocosts and benefits of the various approaches.

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T8. All Roads Lead to Rome: How to Estimate BetaCan Yilanci

Starting References• Ang. A., J. Chen, Y. Xing. 2006. Downside Risk. The Review of Financial Studies. 19(4). 1191-

1239

• Dimson, E. 1979. Risk Measurement When Shares are Subject to Infrequent Trading. Journal ofFinancial Economics. 7. 197-226

• Frazzini, A., L. H. Pedersen. 2014. Betting against beta. Journal of Financial Economics. 111(1).1-25

• Levi, Y., I. Welch. 2020. Symmetric and Asymmetric Market Betas and Downside Risk. TheReview of Financial Studies. 33(6). 772-2795

• Lintner, J. 1965. Security Prices, Risk, and Maximal Gains from Diversification. The Journal ofFinance. 20(4). 587-615

• Sharpe, W. 1964. Capital Asset Prices: A Theory of Market Equilibrium under Conditions ofRisk. The Journal of Finance. 19(3). 425-442

• Vasicek, O. 1973. A Note on Using Cross-Sectional Information in Bayesian Estimation ofSecurity Betas. The Journal of Finance. 28(5). 1233-1239

• Welch, I. 2020. Simple Better Market Betas. Working Paper.

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T9. Stock Market Beta and Macroeconomic Announcement Days

Can Yilanci

Topic Description• Ever since the foundation of the Sharpe-Lintner CAPM (Sharpe, 1964; Lintner 1965), beta is used as a

measure to determine stocks’ expected rate of return. However, early tests of the CAPM did not findevidence for a direct relation between beta and average excess returns (Fama and French, 1992) (“betaanomaly”, dotted line in the figure). Savor and Wilson (2014) show that asset prices behave differently onmacroeconomic announcement days. On inflation, unemployment, and FOMC interest announcementdates, there is a significant relation between beta and average excess returns (solid line in the figure).

• Ang et al. (2006) propose downside and upside betas because “investors care differently about downsidelosses versus upside gains”. They show that there exists a downside premium of about 6%.

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• The thesis aims at bringing together the evidencepresented in Savor and Wilson (2014) and Ang et al.(2006). In particular, the student’s task is threefold.First, the student should review related literature.Second, the student should replicate the evidence inSavor and Wilson (2014). Third, in the fashion of Ang etal. (2006), the student should calculate downside andupside betas for macroeconomic announcement days.In particular, the following questions should beanswered. Do the results of Savor and Wilson (2014)also hold for a more recent period? Is downside risk apriced risk factor on macroeconomic announcementdays?

T9. Stock Market Beta and Macroeconomic Announcement Days

Can Yilanci

Starting References• Ang. A., J. Chen, Y. Xing. 2006. Downside Risk. The Review of Financial Studies. 19(4). 1191-

1239

• Fama, E., K. French. 1992. The cross-section of expected stock returns. The Journal of Finance.47. 427-465

• Lintner, J. 1965. Security Prices, Risk, and Maximal Gains from Diversification. The Journal ofFinance. 20(4). 587-615

• Savor, P., M. Wilson. 2013. How much do investors care about macroeconomic risk? Evidencefrom scheduled economic announcements. Journal of Financial and Quantitative Analysis. 48.343-375

• Savor, P., M. Wilson. 2014. Asset pricing: A tale of two days. Journal of Financial Economics.113(2). 171-201

• Sharpe, W. 1964. Capital Asset Prices: A Theory of Market Equilibrium under Conditions ofRisk. The Journal of Finance. 19(3). 425-442

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