cover AR-SFI-07 22.10.2008 11:29 Page 1 Activity Report 2007-2008 Geneva Zürich Bd. du Pont d'Arve 40 Walchestrasse 9 1211 Geneva 4 8006 Zurich Switzerland Switzerland T +41 22 379 84 71 T +41 44 254 30 80 F +41 22 379 82 77 F +41 44 254 30 85 [email protected] [email protected] www.SwissFinanceInstitute.ch cover AR-SFI-07 22.10.2008 11:29 Page 2 Impressum The Swiss Finance Institute Activity Report is published once a year. A publication of the Swiss Finance Institute. Editor: Jean-Pierre Danthine. Contributors to this issue: Anita Belitz-Krasniqi, Tobe Freeman, Harry Hürzeler The Activity Report can be obtained free of charge from: Swiss Finance Institute Bd. du Pont d'Arve 40 1211 Geneva 4 - Switzerland Tel +41(0)22 379 84 71 - Fax +41(0)22 379 82 77 www.SwissFinanceInstitute.ch - [email protected] Activity Report 2007-2008 s a world-leading financial center building on a rich history, Switzerland’s financial sector has A the natural ambition of housing a world-leading research and training center in banking and finance. The Swiss Finance Institute is the product of this ambition. Established at the initiative of the Swiss Bankers Association, it is a private foundation created in January 2006 with the support of the Swiss banking and finance community and SWX together with the Swiss Confederation, the Swiss National Science Foundation and several Swiss universities with the aim of advancing research activities in finance and executive education in the banking and finance sector. The Swiss Finance Institute encompasses three pre-exist- ing foundations: the International Center for Financial Asset Management and Engineering (FAME), the Stiftung Banking und Finanz an der Universität Zürich, and the Swiss Banking School. This merger has led to the creation of one of the major European providers of research, doctoral training and advanced executive education in banking and finance. This report gives an overview of Swiss Finance Institute’s activities during 2007 and the first half of 2008. 2 Word from the Board 2007 was the second year of operation of the Swiss • The SFI PhD Program welcomed 18 new students Finance Institute. Construction signs were still and celebrated 11 new graduates, bringing the ubiquitous but the first fruits of our activity were number of active students to 73, one of the largest ready to harvest. Here are some of the highlights: student bodies for a PhD program in finance. • Research activities have led to 37 new research • The cooperation agreement with ETHZ became papers published in collaboration with FinRisk on effective, thus bringing to 6 the number of the Social Science Research Network, while 17 academic institutions partnering with SFI. important publications in top journals have been • The final official act, the merger of the Stiftung recorded in 2007 or are forthcoming. Banking und Finanz an der Universität Zürich • 665 participants from all over the world registered into the SFI foundation was concluded. for our executive education classes. • Five new professors were hired by SFI with its partner universities in 2007. With four ETHZ With new offices inaugurated in Zurich and Geneva professors joining the Swiss Finance Institute fac- and a growing staff (with a headcount approaching ulty and the three new researchers hired in 2006, 20), 2007 was a year of transformation and growth. this led to a total of 49 affiliated faculty members, It was also a year of hard work sustained by consider- all of whom benefit from some form of research able enthusiasm. This is the time for us to thank all support by SFI. involved, with a special mention to the members of • Ten professors were awarded SFI chairs and the Institute’s staff who have worked wonders under fellowships in recognition of their research high pressure. Our gratitude also goes to the mem- achievements, their intellectual reputation and bers of our Foundation Board and Advisories who their commitment to the Institute. have invested time and dedication to this collective • The second SFI visiting professor joined the undertaking despite very demanding professional faculty for the 2007-08 academic year: a specialist agendas. We thank especially Prof. J. Weber, repre- of credit risk, Darrell Duffie, Dean Witter senting the SFI-Léman Center, and Dr. C. Kleiber, Distinguished Professor of Finance at Stanford representing the Swiss Confederation, who have left University, was widely solicited by the media and the Foundation Board in the course of the year as SFI sponsors in this first year of the subprime well as Mr. P. Anghern, Credit Suisse and Mr. C. crisis. He taught a very successful PhD class and Streule, HSBC Private Bank, who have contributed delivered the keynote speech on “Portfolio to the Executive Education Advisory Board since Default Risk: Empirical Evidence” at our second its inception until the end of 2007. Annual Meeting in December. His predecessor, Peter Bossaerts, SFI visiting professor in 2006-07, In 2008, we fully anticipate continuing on the same stayed on permanently on our faculty as the first path to success. SFI professor of finance at EPFL. Olivier Steimer Jean-Pierre Danthine Chairman of the Foundation Board Managing Director The Swiss Finance Institute Faculty With four ETHZ professors joining the Swiss Finance Institute in Swiss Finance Institute Faculty 2007 and the hiring of seven new professors in our first two years by (June 2008) our partner universities, SFI faculty totalled 50 professors halfway through 2008. Philippe Bacchetta Giovanni Barone-Adesi * By June 30, 2008, the Swiss Finance Institute counted 50 researchers. Alessandro Beber Tony Berrada These researchers hold professorial positions at the Institute’s partner Peter Bossaerts * universities throughout Switzerland. They form one of the largest, if Marc Chesney not the largest, academic research groups in Europe. This faculty Fulvio Corsi body represents an extraordinary concentration of competencies; Jean-Pierre Danthine it will drive the translation of world-class research into an enhanced Enrico De Giorgi university finance curriculum and quality executive education in François Degeorge ** Switzerland. Bernard Dumas * Pierre-André Dumont Paul Embrechts The year 2007 saw the implementation of an end-of-2006 decision Daniela Fabbri of the Foundation Board, following a recommendation of the SFI Giovanni Favara Scientific Council, to recognize the special status of ten researchers Francesco Franzoni *** affiliated with the Swiss Finance Institute. Thus eight individuals who Patrick Gagliardini *** have distinguished themselves by their strong publication record and Fausto Galli broad international reputation have received an SFI Senior Chair or Hans Geiger Rajna Gibson Brandon * an SFI Fellowship. Simultaneously, two younger scholars with highly Manfred Gilli promising potential were offered Swiss Finance Institute Junior Chairs. Michel Habib * Thorsten Hens ** With two recruitments in 2006, three recruitments in 2007, and Martin Hoesli one recruitment in the first semester of 2008, the core SFI faculty Julien Hugonnier *** now boasts seven professors holding senior chairs, four SFI fellows Jean Imbs and six junior chairs. The overall SFI research team includes Eric Jondeau Felix Kubler * thirty-three additional professors with permanent or temporary Jean Lefoll University contracts, all active in research under the name of, Markus Leippold and eligible for support from the Institute. Henri Loubergé Semyon Malamud Erwan Morellec * Eric Nowak Center highlights Claudio Ortelli Marc Paolella At the SFI Léman Center two new professors were hired: Peter Bossaerts as an Michael Rockinger ** SFI Senior Chair at the EPFL and Alexei Zhdanov as an SFI Junior Chair at Olivier Scaillet ** the University of Lausanne. The University of Lausanne was also fortunate to Enrique Schroth Norman Schürhoff *** welcome Darrell Duffie as an SFI Visiting Professor this year! Martin Schweizer Didier Sornette At the SFI Lugano Center, Francesco Franzoni was hired as an SFI Junior Chair. Pascal St-Amour Paolo Vanini At the SFI Zurich Center, appointments for Felix Kubler as an SFI Senior Chair Rudolf Volkart and Alexander Wagner for a tenure track assistant professor position for 2008 Alexander Wagner were both implemented by the University of Zurich. Mei Wang Lucy White *** Alexei Zhdanov *** Alexandre Ziegler * Senior Chair ** Research Fellow *** Junior Chair 4 Research Highlights The visibility of the Swiss Finance Institute in the international academic world will in large part be proportional to the number “Municipal bonds trade in opaque, and quality of publications by affiliated researchers in top academic decentralized broker-dealer markets in journals, i.e., those journals that historically have been first in which price information is costly to promoting the ideas that have changed financial practices. gather. We analyze a database of trades The Scientific Council of SFI places extra weight on publications between broker-dealers and customers in appearing in the following journals: Journal of Finance, Journal of municipal bonds. These data were only Financial Economics, Review of Financial Studies, American released to the public with a lag; the Economic Review, Journal of Political Economy, Quarterly Journal market was opaque. Dealers earn lower of Economics, Econometrica and Review of Economic Studies. average markups on larger trades, even In 2007 and the first half of 2008 the following eight articles were though dealers bear a higher risk of losses published: with larger trades. We estimate a bargain- ing model and compute measures of deal- A GARCH Option Pricing Model with Filtered Historical Simulation, er’s bargaining power. Dealers exercise Giovanni Barone-Adesi, Robert F. Engle and Loriano Mancini, substantial market power. Our measures The Review of Financial Studies, 21(3), pp 1223-1258, 2008. of market power decrease in trade size and increase in the complexity of the trade Heterogeneous Preferences and Equilibrium Trading Volume, for the dealer.” Abstract from Financial Tony Berrada, Julien Hugonnier and Marcel Rindisbacher, Intermediation and the Costs of Trading The Journal of Financial Economics, vol.