According to current regulation, European banks can apply zero risk weights to sovereign exposures in their balance sheet, irrespective of the assigned rating. We show that a zero risk weighting of sovereign bonds has implications by distorting banks' asset allocation decisions. Due to the lower...

According to current regulation, European banks can apply zero risk weights to sovereign exposures in their balance sheet, irrespective of the assigned rating. We show that a zero risk weighting of sovereign bonds has implications by distorting banks' asset allocation decisions. Due to the lower...

Choice under Uncertainty -- Modern Portfolio Theory -- The Capital Asset Pricing Model -- Empirical Analysis of the CAPM -- The Consumption CAPM -- Arbitrage Pricing Theory and Multi-factor Models -- Empirical Cross-Sectional Asset Pricing -- The Black-Litterman Model -- Event-Study Analysis.