Main Publications (Link to Google Scholar)
- Arnold, M.; Pelster, M.; Subrahmanyam, M.G. (2021): 'Attention triggers and investors' risk-taking', Journal of Financial Economics (a Financial Times top 50 journal).
The paper investigates the impact of individual attention on investor risk-taking. We analyze a large sample of trading records from a brokerage service that allows its customers to trade contracts-for-differences (CFD), and sends standardized push messages on recent stock performance to its client investors. The advantage of this sample is that it allows us to isolate the "push" messages as individual attention triggers, which we can directly link to the same individuals' risk-taking. A particular advantage of CFD trading is that it allows investors to make use of leverage, which provides us a pure measure of investors' willingness to take risks that is independent of the decision to purchase a particular stock. Leverage is a major catalyst of speculative trading, as it increases the scope of extreme returns, and enables investors to take larger positions than what they can afford with their own capital. We show that investors execute attention-driven trades with higher leverage, compared to their other trades, as well as those of other investors who are not alerted by attention triggers.
- Koester, H.; Pelster, M. (2017): 'Financial penalties and bank performance', Journal of Banking and Finance 79, 57-73. (Latest thinking video, more)
The paper investigates the impact of financial penalties on the profitability and stock performance of banks. Using a unique dataset of 671 financial penalties imposed on 68 international listed banks over the period 2007 to 2014, we find a negative relation between financial penalties and pre-tax profitability but no relation with after-tax profitability. This result is explained by tax savings, as banks are allowed to deduct specific financial penalties from their taxable income. Moreover, our empirical analysis of the stock performance shows a positive relation between financial penalties and buy-and-hold returns, indicating that investors are pleased that cases are closed, that the banks successfully manage the consequences of misconduct, and that the financial penalties imposed are smaller than the accrued economic gains from the banks’ misconduct. This argument is supported by the positive abnormal returns accompanying on the announcement of a financial penalty.
- Ortmann, R.; Pelster, M.; Wengerek, S.T. (2020): 'COVID-19 and investor behavior', Finance Research Letters 37, 101717.
The paper studies the impact of the COVID-19 outbreak on investors' trading activities. We show that investors significantly increase their trading activities as the pandemic unfolds, both at the extensive and at the intensive margin. The number of investors who first open a brokerage-account increases, while at the same time established investors increase their average trading activities.
- Pelster, M.; Hofmann, A. (2018): 'About the fear of reputational loss: Social trading and the disposition effect', Journal of Banking and Finance 94, 75-88.
The paper studies the relationship between giving financial advice and the disposition effect on a social trading platform. Our empirical findings suggest that leader traders are more susceptible to the disposition effect than investors who are not being followed by any other trader. Using a difference-in-differences approach, we show that becoming a first-time financial advisor increases the disposition effect. This finding holds for investors who engage in foreign exchange trading and for investors who trade stocks and stock market indices. The increased behavioral bias may be explained by leaders feeling responsible to their followers, by a fear of losing followers when admitting a poor investment decision, or by an attempt by newly appointed leaders to manage their social image and self-image.
- Pelster, M.; Schertler, A. (2019): 'Pricing and issuance dependencies in structured financial product portfolios', Journal of Futures Markets 39, 342-365.
The paper studies pricing and issuance dependencies among different types of structured financial products (SFPs). Our study provides evidence of cross‐pricing between products with complementary payoff profiles. Such dependencies may be explained by issuers’ efforts to generate order flow for products that supplement their current SFP risk exposure. Additionally, we observe issuance patterns in line with the argument that issuers exploit the complementarity payout profiles when bringing SFPs to market. Our study emphasizes cross‐pricing from a perspective not previously considered in the literature.
Research on Investor Trading Behavior
Using brokerage data, I study the trading behavior of retail investors and how retail investors adjust their trading activities in response to new brokerage-features (for example push notifications in Arnold et al., 2021) or due to external shocks such as the COVID-19 outbreak (Ortmann et al., 2020) or terrorist activity (Hasso et al., 2020).
- Arnold, M.; Pelster, M.; Subrahmanyam, M.G. (2021): 'Attention triggers and investors' risk-taking', Journal of Financial Economics (a Financial Times top 50 journal).
- Ortmann, R.; Pelster, M.; Wengerek, S.T. (2020): 'COVID-19 and investor behavior', Finance Research Letters 37, 101717.
- Hasso, T.; Pelster, M.; Breitmayer, B. (2020): 'Terror attacks and individual investor behavior: Evidence from the 2015-2017 European terror attacks', Journal of Behavioral and Experimental Finance 28, 100397.
- Pelster, M. (2020): 'The gambler's and hot-hand fallacies: Empirical evidence from trading data', Economics Letters 187, 108887.
- Breitmayer, B.; Hasso, T.; Pelster, M. (2019): 'Culture and the disposition effect', Economics Letters 184, 108653.
- Pelster, M.; Breitmayer, B.; Hasso, T. (2019): 'Are cryptocurrency traders pioneers or just risk-seekers? Evidence from brokerage accounts', Economics Letters 182, 98-100. (Media coverage: yahoo finance, coindesk.com, pressetext)
- Hasso, T.; Pelster, M.; Breitmayer, B. (2019): 'Who trades cryptocurrencies, how do they trade it, and how do they perform? Evidence from brokerage accounts', Journal of Behavioral and Experimental Finance 23, 64-74.
Research on Social Trading
In my research on social trading I study the interaction-based relations of traders from a large social trading platform and how the behavior of investors changes due to social interactions.
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- Pelster, M. (2017): 'I’ll Have What S/he’s Having: A Case Study of a Social Trading Network'’, Proceedings of the International Conference on Information Systems 2017.
- Pelster, M.; Hofmann, A. (2018): 'About the fear of reputational loss: Social trading and the disposition effect', Journal of Banking and Finance 94, 75-88.
- Pelster, M.; Breitmeyer, B. (2019): 'Attracting attention from peers: Excitement in social trading'', Journal of Economic Behavior & Organization 161, 158-179.
- Liêu, M.L.; Pelster, M. (2020): 'Framing and the disposition effect in a scopic regime', Quarterly Review of Economics and Finance 78, 175-185. (Data in Brief)
- Steiger, S.; Pelster, M. (2020): 'Social interactions and asset pricing bubbles', Journal of Economic Behavior & Organization 179, 503-522. (Data)
Research on Banking, Financial Penalties, and Regulation
My research studies the effects of financial penalties as well as bank capital, regulation, and supervision on the stock performance and systemic risk of global banks. For example, in Köster and Pelster (2017), we show that announcements of financial penalties are accompanied with increased stock performance. more
- Koester, H.; Pelster, M. (2017): 'Financial penalties and bank performance', Journal of Banking and Finance 79, 57-73. (Latest thinking video)
- Koester, H.; Pelster, M. (2018): 'Financial penalties and the systemic risk of banks', Journal of Risk Finance 19, 154-173.
- Pelster, M; Irresberger, F.; Weiß, G. (2018): 'Bank stock performance and bank regulation around the globe', European Journal of Finance 24, 77-113.
Dependency Structures and Their Implications for Asset Pricing
This project is concerned with the implications of dependency structures on asset pricing. Pelster and Vilsmeier (2018) considers the importance of (non-linear) dependency structures in asset pricing for the case of CDS contracts and shows that CDS price dynamics can be mainly explained by factors describing firms' sensitivity to extreme market movements. Pelster and Schertler (2019) show that, beyond conventional hedging, issuers of structured financial products exploit cross-pricing and cross-issuance of warrants and discount certificates as risk management tools.
- Pelster, M.; Schertler, A. (2019): 'Pricing and issuance dependencies in structured financial product portfolios', Journal of Futures Markets 39, 342-365.
- Pelster, M.; Vilsmeier, J. (2018): 'The determinants of CDS spreads: evidence from the model space', Review of Derivatives Research 21, 63-118.
Other Publications
- Pelster, M.; Hagemann, V.; Laporte Uribe, F. (2016): 'Key aspects of a sustainable health insurance System in Germany', Applied Health Economics and Health Policy 14, 293-312.
