Final blog

I will not be making any further posts to this blog.

May I take this opportunity to warmly thank the visitors (clocking up 10,000 visits from 100+ countries) and contributors (from Institute visitors to students to directors at the SFI) for supporting the blog!

Institute Director Jean-Pierre Danthine to join Swiss National Bank

The Managing Director of the Swiss Finance Institute, Jean-Pierre Danthine, will join the Swiss National Bank's Governing Board in 2010.

The announcement of professor Danthine's appointment was made on April 8th and was widely reported in the press.

For those keen to see researchers represented in Government, the appointment is good news and I wish Jean-Pierre the very best in the role.

Rajna Gibson considered for future Swiss National Bank Board

Following the announcement of Jean-Pierre Roth's retirement at the end of the year, Swiss Finance Institute's Rajna Gibson has been named as a possible candidate for the Executive Board of the Swiss National Bank.

Professor Gibson, pictured here in discussion with Banque Cantonale Vaudoise Board Chairman Olivier Steimer, is director of research at the SFI.

Watch this space for developments.

Wegelin Managing Partner Otto Bruderer highlights trust at Executive Program graduation ceremony

The 70 graduates of the 2008 Executive Program assembled this afternoon to receive their diplomas, and to learn who had won this year's award for the best diploma thesis.

Dr Bruderer gave an erudite presentation on the importance of trust in banking based on his personal experiences before launching into a sure-footed description of interdisciplinary research, conducted by leading economist Ernst Fehr, on the neurobiological basis of trusting behaviour.

The Executive Program Alumni Prize went to Credit Suisse computer science expert René Keller for his research "Web 2.0 in Private Banking: The impact of Internet services on the client advisory process".

A graduate of the ETH computer science department, René has held various IT management positions and currently heads CS's IT Core Banking Solutions division. Last year, the Alumni prize went to Dr Haibo Wunderli-Ye for her research on wealth management in China.

Novel method to reveal true performance of US mutual funds

A highlight of this year's Annual Meeting was a presentation by Olivier Scaillet (pictured at the Meeting) on the application of false discovery rate (FDR) statistics to the estimation of mutual fund performance.

Scaillet uses FDR to reveal when good fund performance can be attributed to chance alone, and is therefore likely to deteriorate in the long term.

The Geneva-based faculty member of the SFI become interested in the application of FDR statistics to finance after attending a presentation by Berkeley statistician John Rice at a statistics conference in Brazil.

Though Rice applies the method to the detection of stellar occultations, Scaillet recognized the application to mutual fund selection when Rice stated:
We face the problem of searching for needles in a haystack when we do not know what the needles look like. How do we automate serendipity?

At this point on a Friday afternoon I am glad to entrust Scaillet to select the correct statistical test for this particular application.

The end result is that the private banking industry will benefit from an objective and relatively simple method to select wisely among the estimated 2100 US domestic mutual funds available to today's investor.

Forward look from Institute guest Professor Tom Cooley

What is the benefit of drawing upon academic research in the teaching of executive education? "Research is inherently forward looking and it is that inherent forward looking habit of mind that singles out a manager for success".

Dean Tom Cooley made these comments during a roadshow for the NYU Stern/Institute's new Executive MBA in Banking and Financial Institutions Management (EMBA), held today at Zurich's stylish Widder Hotel.

He and other representatives from the EMBA program Harry Hurzeler and Claudia Pfenniger offered answers to some pressing questions posed by the assembled graduate-level professionals in banking and finance.

"It is hard to imagine how someone can prepare to get to the next level in Management just by studying the way business is being done," said Professor Cooley. "If you do that alone you will always be backward looking".

Executive education programs that are embedded in strong research faculties, like the Swiss Finance Institute and NYU Stern School, enrich the conventional case study approach to business education with an academic basis that can better sustain a manager's career.

I will be reporting more from Professor Cooley and our other international guests in the coming weeks. For more information about the EMBA click here.

Third Annual Meeting assembles CEO's and top finance professors to reflect on solutions to financial instability

Tomorrow is the annual highlight in the Institute's knowledge transfer calendar with a day-long meeting that will assemble our faculty, invited academics from around the world, and special guests UBS Group CEO Marcel Rohner and NYU Dean Tom Cooley.

There's more information about the event here.

I will be reporting on the research presentations at the event shortly, including Professor Michael Brennan's presentation on agency and asset pricing, Olivier Scaillet's presentation on his work on false discoveries in US mutual fund manager performance and Amit Goyal's first major public presentation for the Institute since he took up his Senior Chair in August.

The image, above, shows Visiting Professor Darrell Duffie giving the plenary presentation at the Second Annual Meeting last year.

New challenges for Swiss market maker

As part of our regular Alumni Lunch meetings held at the elegant Zunfthaus to Saffran, the Institute had the honour of hearing a presentation by SIX Group CEO Urs Ruegsegger (pictured).

Dr Ruegsegger spoke about recent developments at SIX Group, the organization responsible for Switzerland’s financial market infrastructure. We will hold our Annual Meeting at the HQ of the SIX Group in Zurich next year.

Swiss Finance Institute Foundation Board member Philipp Halbherr was recently elected to the Board of Directors for the SIX Group AG, and I try to keep up to date with the Group's activities.

Reason and emotions in executive pay

Institute Director Jean-Pierre Danthine is presenting his research on executive compensation at the University of Amsterdam this afternoon. The research, performed jointly with John Donaldson of Columbia Business School, examines the "pay for luck" puzzle that is so much in the news these days.

Earlier, Swiss-based French-speaking press interviewed Professor Danthine about the work.

Two sides of the coin

Two events this week saw a keen audience assemble to discuss and hear the latest facts and research from the world of finance. First came the Swiss Finance Industry Seminar by Swiss National Bank (SNB) Board Member Thomas Jordan. Professor Jordan addressed a capacity audience of more than 220 people on Tuesday morning (photo) to talk about the SNB Transaction.

And yesterday FINRISK research project leaders gave an all day presentation on the current state of their research. I'll be posting on some of those presentations in the coming days, including an excellent presentation on neurofinance by Kerstin Preuschoff. Dr Preuschoff presented some very compelling evidence that the human brain encodes important financial concepts, including expected reward, in a systematic and predictable fashion.

Economics of uncertainty

The Swiss Finance Institute found its way into several recent media discussions in the midst of this extraordinary time for the field of finance. Among others, Institute managing director Professor Jean-Pierre Danthine and Professor Martin Hoesli gave interviews and the Institute cropped up in several discussions about the Swiss financial centre.

An expert of property finance, Martin Hoesli has advised governments and pension funds on how to assess risk adjusted returns in the real estate sector and brings an empirical eye to the housing market in Switzerland and abroad. His timely new book "Real estate investment - Decision and Risk Management" has just been published by Paris-based Economica.

Jean-Pierre Danthine has given numerous interviews for print and radio in recent weeks, most recently on the Swiss approach to supporting the financial system through research and education. The goal, according to Danthine, is to strengthen Europe's research culture in the field of finance to be commensurate with its economic significance internationally.

Geneva based daily Le Temps claims that research is acutely needed as ballast in the seas of economic uncertainty. And Zurich based Finanz und Wirtschaft believes that new initiatives such as the Swiss Finance Institute cannot come soon enough in a financial system seeking an alternative to the specific forms of intervention coming from Washington and Brussels.

Professor Michael Brennan presents wake up call on stock return bias

Early risers in Zurich were treated to an impressive research presentation by Professor Michael Brennan (left) this morning entitled "The Mispricing Return Premium".

The substantial size of the positive bias in stock prices estimated by Brennan's empirical study of NYSE, AMEX and Nasdaq data was all the more startling for the audience given the time-slot of the event: 7am at Zuercher Kantonalbank's gleaming offices in Zurich West.

Professor Emeritus at UCLA Anderson School and London Business School, Michael Brennan's research covers a broad topic range in finance and the Institute will see another facet of his current work when he presents on agency and asset pricing at our Annual Meeting in November.

The next seminar in the Swiss Finance Industry Seminar series, held on October 28th at 7am, will be given by Thomas Jordan, Member of the Governing Board of the Swiss National Bank and University of Berne. Professor Jordan's presentation is entitled Geldpolitik und Liquiditaet. Click here to register.

Also pictured: Didier Sornette (middle) and Paolo Vanini (right). Professor Vanini is director of knowledge transfer at the Swiss Finance Institute. The presentation was followed by a lively discussion from the assembled experts in banking and finance.

Financial market losses and research gains

Institute Foundation Board member Dr Philipp Halbherr addressed this year's newly minted graduates of the Master in Advanced Studies in Finance today with a positive take on the credit crisis, - at least from a research perspective!

Addressing the graduates, he explained that he did not wish to add to the sense of financial gloom, and wanted instead to encourage talented people to research financial systems. "The crisis will provide a rich body of data and experiences, giving us a new basis for risk management in the future".

Recently elected as representative of the cantonal banks on the Board of Directors for the SIX Group AG, Dr Halbherr is Head of Investment Banking, and a member of the Executive Board, at Zürcher Kantonalbank.

Countries must not go it alone in terms of banking laws and regulations

I have just attended the Swiss Bankers Association annual press conference, where Association Chairman Pierre Mirabaud spoke about the importance of the strong connections between Swiss banks for weathering financial turmoil.

Mirabaud was keen to emphasize the number of Swiss banks that are not directly affected by the liquidity problems that continue to grip the headlines. He saw a way forward for Switzerland's banking system based on agreed international regulation and cooperation. "Global crises cannot be solved or prevented on a national level," he explained.

Held at the Zurich's Hotel Savoy, the press conference was attended by journalists from throughout Europe and representing all the major agencies. Later in the day Mirabaud announced new elections to the board of the Swiss Bankers Association, including Swiss Finance Institute Foundation Board member Patrick Odier.

Institute's rising activity with Stern

The Institute went public about its joint program with NYU Stern School yesterday and the story was reported in FT.com here with a piece by FT Business Education Editor Della Bradshaw. Briefly, the new executive MBA in banking and financial institutions management will commence in August 2009 with residential modules taking place in New York, Zurich and Singapore.

From FT.com
"As researchers and educators, we must promote a greater understanding of the risks and opportunities confronting our financial institutions," says Thomas Cooley, dean of NYU Stern. "Future executives graduating from this programme will require broader and more integrated financial knowledge, and will need to know how to manage financial institutions in a global context".

The news also received excellent cover in the Swiss press, with reports in Finanz und Wirtschaft and Le Temps.

We are looking forward to hearing more from Dean Cooley at this year's Annual Meeting, where he will participate in a round table discussion about finance in the wake of the credit crisis.

Certificate FAME evening session with BCV Executive Board Member

The challenges and opportunities for universal banks offering wealth management services was a key theme in an evening session of CFAME held last Thursday during the final week of the Certificate program.

Participants heard a presentation by BCV Executive Board Member and head of wealth management Christopher Preston (photo, right), who demonstrated that success is not simply correlated with an institutions's size. Founded in 1845 to contribute towards the economic development of the Swiss Canton of Vaud, BCV has solidly outperformed the Swiss stock exchange Banks index during the past 5 years.

Mr Preston described how BCV met challenges such as increasing competition, regulation and client sophistication with a strategy of client focus, team work and an eye for performance.

Zurich credit crisis conference assembles researchers from Europe, US and Asia

Lending behaviour, securitization and credit rating practices will be the focus of an upcoming conference organized by the BSI Gamma Foundation in Zurich. "The Credit Crisis: Causes, effects and lessons", September 2nd, is jointly organized with Finrisk and the SFI and will be hosted at the Swiss Exchange convention center.

Researchers from the IMF, University of Chicago, Hong Kong University and the Bank of England will present their findings on the crisis that initially, or at least officially, started in 2007 as a problem in the US subprime mortgage market.

The picture shows the results of a google trends search for the terms "credit crisis" and "easy credit". I offer this picture lightly, of course. But it acts as a nice heuristic for the relatively recent recognition of the crisis, and even suggests a weak anti-correlation between the two terms. For a more substantial SFI posting on the credit crisis click here.

Click here to register for the conference (deadline is next Monday, August 25th). I will post a report shortly after the event. Note that the conference academic director René Stulz will stay on in Switzerland the following week to teach a week-long course in integrated risk management in Geneva.

Princeton Professor Shin kicks off Industry Seminars

Last Friday, the Institute staged the first of its new Swiss Finance Industry Seminars with a presentation by Princeton's Professor Hyun Song Shin, who described his research on understanding the credit crisis.

Professor Shin's views on the credit crisis have been published recently in the Washington Post and he had just spent the week participating at a conference held at Study Centre Gerzensee, near Berne.

Professor Shin focuses on three 'puzzles' associated with the crisis. Namely, Why the crisis apparently affects some markets but not others? How a financial problem ostensibly limited to a mere portion of the home mortgage market could come to assume such global financial significance? And finally, How is it that subprime credit risk came to be so concentrated among such sophisticated financial players as the major banks?

He points the finger at excessive leverage and the problems that can arise when financial intermediaries significantly raise leverage during booms and then attempt to lower their leverage during downturns.

When will the crisis end? Shin believes that perceptions of financial risks will not decline anytime soon. Conditions will remain as they are, he claims, until aggregate balance sheets decline, and new capital is raised, to ultimately arrive at a situation in which corporate balance sheets are adequately supported.

The next seminar in the series, held on October 7th at 7am, will be given by Michael Brennan, University of California and London Business School. Prof Brennan's presentation is entitled The mispricing return premium. Click here to register.

Midway to CFAME

Participants in the 2008 Certificate in Financial Asset Management and Engineering course (CFAME) have reached the mid point of the 5 week program this week with presentations on Market and Credit Risk Management.

Institute Senior Chair Erwan Morellec and Assistant Professor Tony Berrada presented the tools needed to size up the risks facing financial institutions large and small. Earlier in the week saw presentations by Olivier Scaillet, whose work on estimating outperformance among fund managers featured recently in the New York Times.

CFAME's Class of 2008 displays the international mix so characteristic of program, with two thirds of the class coming from outside Switzerland. I spoke with financial planner Philip Amery (pictured, right), who'd made the journey from Adelaide, Australia and medical graduate Ahmed Alsaleh, and learned about the opportunities available to numerically-savvy financial folks around the globe. Both saw great opportunities in these challenging times.

Very refreshing.

ETH Member of Institute gives lecture on parallels between financial crashes and disturbances in nature

Professor Didier Sornette (photo) presented insights into the workings of financial crises at a special presentation to ETH Alumni last Thursday evening.

Sornette, who is a member of the Swiss Finance Institute faculty, holds the ETH Chair of Entrepreneurial Risk at the Department of Management, Technology and Economics.
The Department is one of several ETH research departments involved in an agreement with the Swiss Finance Institute, signed last December, that enables selected ETH faculty to become affiliated with the Institute.

Originally trained in the physical sciences, Didier Sornette's ideas about financial crises appear regularly in the press. He recently commented on the involvement of Swiss banks in the credit crisis that continues to affect the stability of global financial markets.