Available Master thesis topics
Asset management and asset pricing:
A1. Dynamic Asset Allocation using Reinforcement Learning (reserved)
Optimize multi-asset portfolio using Recurrent Neural Network. Compare the results to the benchmark, i.e.m a combination of S&P 500 + US corporates benchmark. This thesis will be jointly supervised by our institute and an industry partner (Solactive). Relevant literature: a) Oflus, Kemal, Quantitative Tactical Asset Allocation Using Ensemble Machine Learning Methods (May 18, 2014), ssrn.com/abstract=2438522. b) Stefanescu, Razvan, Optimal Asset Allocation Strategies (June 26, 2016), https://ssrn.com/abstract=2800815. Note that this topic requires visits to Frankfurt in order to cooperate with the industry partner. Please contact Andre Guettler if you are interested.
A2. Thematic Investments and Optimized Portfolios
The world of thematic investing provides investors an opportunity to participate in specific investment themes. These can be based on very promising trends, but at the same time may be exposed to higher risks in comparison with a broad diversified portfolio. Theory tells us that the overall asset allocation and efficient portfolio construction ("top down") is more important than the selection of single investment vehicles ("bottom up"). Based on theory as well as historical performance data, this Master thesis explores efficient ways to incorporate thematic investments into an optimized portfolio. This thesis will be jointly supervised by our institute and an industry partner (Solactive). Note that this topic requires visits to Frankfurt in order to cooperate with the industry partner. Please contact Andre Guettler if you are interested.
A3. Has Passive Investing shifted US Equity Market Dynamics?
Passive investment strategies focus on tracking a particular index or portfolio. 2019 represented the first point in time in which the assets under management of funds that track U.S. equity indexes surpassed those of actively managed funds. The goal of this thesis is to analyze how the rise of passive investments has influenced the US equity market. For example, how the correlation or reaction to unexpected market shocks of US based index’ constituents may have changed. Please read "The implications of passive investing for securities markets" (Sushko and Turner, 2018) for the general idea. This thesis will be jointly supervised by our institute and an industry partner (Solactive). Note that this topic requires visits to Frankfurt in order to cooperate with the industry partner. Please contact Andre Guettler if you are interested.
A4. Evaluating Credit Risk for Corporate Issuers
Credit risk estimation is one of the core tasks within the management of corporate bond portfolios. There are various methods to score companies according to their credit risk. The goal of this thesis is to compare a classical statistical model to a machine learning model. The comparison should be done against a benchmark (based on data from rating agencies). In a further step, both models should be implemented in an index to analyze their risk adjusted past returns. This thesis will be jointly supervised by our institute and an industry partner (Solactive). Note that this topic requires visits to Frankfurt in order to cooperate with the industry partner. Please contact Andre Guettler if you are interested.
A5. Risks and returns of cryptocurrencies (reserved)
The thesis should replicate and extend a current working paper in this area (VoxEU column and NBER working paper). Extensions could consist of a longer time period including the current downturn and a broader selection of cryptocurrencies. Please contact Andre Guettler if you are interested.
A6. Green bonds (reserved)
The thesis should replicate and extend a current working paper in this area (BIS working paper). Extensions could, for instance, consist of a longer time period and more heterogenous analyses. Please contact Andre Guettler if you are interested.
A7. Replication Exercises
We also supervise replication exercises of published papers in the area of forecasting asset prices. The thesis should replicate a current publication for which there is available data. Replication should be done in R. Please contact Andre Guettler if you are interested.
A8. Make the Amazonas rainforest tradable! How to save the largest ecosystem of the world
This thesis should summarize the programs and the academic literature about rainforest bonds, i.e., bonds that are issued to avoid deforestation (see Section "Carbon Markets" in https://news.mongabay.com/2020/04/investing-in-amazon-rainforest-conservation/), in particular, those targeting the Amazonas rainforest. Please contact Andre Guettler if you are interested.
B1. US Dollar Funding of Foreign Banks and Financial Stability
Total assets of branches and agencies of foreign banks operating in the United States amount to more than 2 trillion USD (source). There is high degree of concentration in this market with the largest five foreign jurisdictions accounting for more than 70% of the total assets. IMF’s Global Financial Stability Report (IMF, 2019) identifies global non-US bank’s dollar funding as a source of financial vulnerability. This thesis should analyze how foreign banks in the US are organizing their US activities via branches. The aim is to understand the motivation of different countries/banks to be active in this market and identify some of the risks that the US branches may pose for their respective parent banks. BIS (2019) provides a good starting point. The data for this thesis is provided (FFIEC call reports). If you are interested, please contact Mahvish Naeem.
B2. Comparability of Basel Risk Weights in the EU Banking Sector
This thesis should replicate and extend a SUERF policy note on the comparability of Basel risk weights in the EU banking sector (VoxEU article and OeNB Financial Stability Report) based on the newly released data of the EBA 2019 Transparency Exercise. Extensions could consist of comparing different time periods (see past EBA Transparency Exercises) to assess whether the heterogeneity among Basel risk weights has increased or decreased over time. If you are interested, please contact Mahvish Naeem.
B3. Evolution of Bank Business Models in Europe
Ayadi et al. (2011) provide a method for determining the business models of European banks based on a cluster analysis of banks’ balance sheet information. The student is expected to perform the cluster analysis for different points in time, at least capturing 2003, 2007, 2009, 2013 and 2016. This analysis aims to provide insights on how the business models of European banks have evolved prior to the global financial crisis and afterwards. The data is available via Bloomberg. Please contact Mahvish Naeem if interested.
Theses in the area of credit risk or banking
C1. Market reactions to rating changes
The thesis aims to look at the effect of corporate rating changes in the bond and stock market. The idea is to use the general model set up from Fracassi et al. (2016) and adapt it to the research question. The thesis focuses on Moody’s rating changes but could potentially be extended with rating data from S&P and Fitch. Please contact Marc Altdörfer if you are interested.
C2. Do analysts matter for credit ratings?
The thesis aims to use a similar approach as in Fracassi et al. (2016) to identify systematic analyst effects in Moody’s corporate rating process. For example, does the analyst’s educational background, or their work experience effect the rating outcome? Please contact Marc Altdörfer if you are interested.
Note that there are usually MSc topics in the area of credit risk (in particular about credit ratings) and banking available in addition to the stated thesis topics above (in case you don't have any own research idea in mind). In this case we will provide necessary data for your thesis. Please send an e-mail to Andre Guettler if you are interested.