Main Publications (Link to Google Scholar)

 

Push notifications and risk-taking

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.

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.

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.

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.

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

Trading activities

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).

 

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.

 

 

 

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

 

 

 

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.

 

Other Publications