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- E-Finance Lab e.V. (18) (remove)
WE STUDY WHETHER PRIVATE EQUITY (PE) FIRMS HAVE A POSITIVE IMPACT ON THE FINANCIAL PERFORMANCE OF THEIR GERMAN PORTFOLIO COMPANIES BEFORE AND AFTER THE IPO. OUR EMPIRICAL ANALYSIS IS BASED ON A UNIQUE AND LARGE DATASET OF ALL IPOS IN GERMANY BETWEEN 2000 AND 2007. WE FIND THAT PE FIRMS SELECT COMPANIES WITH BELOW AVERAGE PERFORMANCE AND THEN IMPROVE PERFORMANCE SUBSTANTIALLY UNTIL THE IPO DATE AND IN MANY CASES ALSO THEREAFTER. THIS IMPLIES THAT PE FIRMS FILL A VOID ALSO IN GERMAN FINANCIAL MARKETS AND THAT THEY WILL ALSO PLAY A FUTURE ROLE IN FINANCING GERMAN ENTERPRISES.
THIS STUDY INVESTIGATES WHAT HAPPENS WHEN RETAIL CUSTOMERS ARE OFFERED FREE AND UNBIASED ADVICE. USING A LARGE FIELD EXPERIMENT IT SHOWS THAT THOSE WHO ACCEPT THE OFFER (5%) ARE MORE LIKELY TO BE MALE, OLDER, WEALTHIER, MORE EXPERIENCED AND MORE FINANCIALLY SOPHISTICATED. HOWEVER, EVEN THOUGH THE ADVICE WOULD HAVE HELPED, IT ACTUALLY LARGELY FAILED TO HELP BECAUSE THE CUSTOMERS DID NOT LISTEN TO IT. OVERALL, OUR RESULTS SUGGEST THAT THE MERE AVAILABILITY OF UNBIASED FINANCIAL ADVICE IS A NECESSARY BUT NOT SUFFICIENT CONDITION FOR BENEFITING RETAIL CUSTOMERS.
INDIVIDUAL INVESTORS ARE REPEATEDLY FOUND TO UNDERPERFORM RELATIVE TO A MARKET INDEX. BESIDES EXCESSIVE TRADING, LITTLE IS KNOWN WHEN RETAIL INVESTORS COLLECTIVELY LOSE. THIS ARTICLE SHOWS THAT TRADING IN SHORT-SELLING CONSTRAINED, VOLATILE STOCKS AROUND EARNINGS ANNOUNCEMENTS IS COSTLY TO INDIVIDUAL INVESTORS. THE EFFECT IS PARTICULARLY PRONOUNCED FOR LESS SOPHISTICATED INVESTORS.
RECENTLY, PASSIVE ETFS AND INDEX FUNDS HAVE BECOME POPULAR AMONG INDIVIDUAL INVESTORS. IN OUR STUDY, WE INVESTIGATE WHETHER INDIVIDUAL INVESTORS BENEFIT FROM USING THEM. WITH DATA FROM ONE OF THE LARGEST BROKERAGES IN GERMANY, WE FIND THAT INDIVIDUAL INVESTORS WORSEN THEIR PORTFOLIO PERFORMANCE AFTER USING THESE PRODUCTS IN COMPARISON TO NON-USERS. SINCE THESE SECURITIES MAKE MARKET TIMING EASIER, FURTHER ANALYSIS REVEALS THAT THE DECREASE IN USERS’ PORTFOLIO PERFORMANCE IS PRIMARILY DUE TO BAD MARKET TIMING.
WE DECOMPOSE INDIVIDUAL INVESTORS’ PORTFOLIO RETURNS INTO PASSIVE BENCHMARK RETURNS, ACTIVE SECURITY SELECTION RETURNS, AND ACTIVE MARKET TIMING RETURNS. FOR THE AVERAGE INVESTOR IN OUR SAMPLE, PASSIVE BENCHMARK RETURNS EXPLAIN SOME 40% OF VARIATION IN LONGITUDINAL PORTFOLIO RETURNS, SECURITY SELECTION EXPLAINS AN ADDITIONAL 50%, AND MARKET TIMING PLAYS ONLY A MINOR ROLE. THIS STANDS IN STARK CONTRAST TO EARLIER RESULTS ON INSTITUTIONAL INVESTORS WHERE PASSIVE BENCHMARK RETURNS (REFLECTING DIFFERENT ASSET ALLOCATION STRATEGIES) EXPLAIN OVER 90%. THE PREDOMINANCE OF SECURITY SELECTION COMES AT A COST FOR INDIVIDUAL INVESTORS: INVESTORS FROM THE HIGHEST QUINTILE IN TERMS OF SECURITY SELECTION ACTIVITY UNDERPERFORM THEIR PEERS FROM THE LOWEST QUINTILE BY MORE THAN 10 PERCENTAGE POINTS PER YEAR. TRANSACTION COSTS EXPLAIN ONLY PART OF THIS UNDERPERFORMANCE. THE LESS INVESTORS DIVERSIFY, THE WORSE THEY DO.
ROBO-ADVICE HAS THE POTENTIAL TO DISRUPT THE MARKET FOR FINANCIAL ADVICE. ALGORITHMS ALREADY DELIVER LOW-COST, AUTOMATIC, AND STANDARDIZED INVESTMENT GUIDANCE TO CLIENTS FROM ALL WEALTH LEVELS AND ESPECIALLY TO THOSE PREVIOUSLY EXCLUDED FROM PERSONAL FACE-TO-FACE ADVICE. TODAY’S OFFERINGS CONCENTRATE ON CONVENIENCE AND COMPLEXITY REDUCTION, COUPLED WITH PASSIVE INVESTMENTS. THE NEXT STEP WILL ADVANCE ALGORITHMS TO DELIVER TAILOR-MADE DECISION SUPPORT FOR THE GROWING NUMBER OF SELF-DIRECTED INVESTORS. THIS ARTICLE PRESENTS REAL-LIFE EMPIRICAL RESULTS ON THE INTRODUCTION OF A PORTFOLIO OPTIMIZATION TOOL THAT GUIDES BROKERAGE CLIENTS TOWARDS INDIVIDUAL OPTIMAL PORTFOLIOS.
UNDERSTANDING HOW HOUSEHOLDS REACT TO THE ARRIVAL OF PERMANENT AND TRANSITORY INCOME IS OF INTEREST FOR RESEARCHERS AND REGULATORS. PREVIOUS STUDIES HAD TO USE IMPRECISE SURVEY DATA TO MEASURE CONSUMPTION AND THUS CONCLUSIONS OFTEN DIVERGED. WE LEVERAGE GRANULAR PERSONAL FINANCE MANAGEMENT FINTECH DATA TO TEST FRIEDMAN'S PERMANENT INCOME HYPOTHESIS AND TO ASSESS HOUSEHOLD SPENDING ELASTICITY AND MARGINAL PROPENSITY TO CONSUME FOR VARIOUS SPENDING CATEGORIES IN RESPONSE TO DIFFERENT INCOME TYPES.
INDIVIDUALS WITH LOWER SELF-CONTROL OFTEN FAIL IN STICKING TO THEIR PLANS WHEN FACING STRONG TEMPTATIONS. ARE THEY ALSO PRONE TO EXHIBIT INVESTMENT BIASES AND SHOW A MORE IMPULSIVE TRADING BEHAVIOR WHILE FORFEITING POTENTIAL PERFORMANCE IN A FINANCIAL CONTEXT? WE USE CIGARETTE ADDICTION, IDENTIFIED THROUGH CHECKING ACCOUNT TRANSACTIONS, AS A PROXY FOR LOW SELFCONTROL AND COMPARE THE INVESTMENT BEHAVIOR OF SMOKERS TO THAT OF NONSMOKERS TO ADDRESS THIS QUESTION EMPIRICALLY.
ON JUNE 18TH, WIRECARD’S SHARE PRICE PLUMMETED BY MORE THAN 60% FOLLOWING THE FIRM’S ADMISSION OF BEING SUBJECT TO “ENORMOUS FRAUD” AND BILLIONS OF EUROS MISSING. THIS REPORT DOCUMENTS GERMAN RETAIL INVESTORS’ RESPONSE AND FINDS THAT THE POPULARITY OF WIRECARD AMONG RETAIL INVESTORS LED TO SUBSTANTIAL LOSSES IN THEIR PORTFOLIOS. THESE LOSSES WERE EXACERBATED BY STRONG BUYING SENTIMENT AFTER THE ANNOUNCEMENT. THE FAILING STOCK WAS PURCHASED BY INVESTORS ALREADY ENGAGED IN IT AS WELL AS NON-EXPOSED CUSTOMERS.
What does your personality reveal about your financial behavior? Evidence from a FinTech experiment
(2022)
We co-operate with a German financial account aggregator (FAA) and conduct a personality survey with 1,700 app users. We combine the survey results with their anonymized transaction data and investigate links between personality traits and spending behavior. Observing many lottery windfalls in our dataset and treating these incidents as real-life experiments, we ask: what do individuals do with unexpected income changes? Our findings suggest that highly extraverted individuals tend to overspend in response to lottery windfalls.
WE STUDY REDISTRIBUTIVE EFFECTS OF INFLATION USING A RANDOMIZED INFORMATION EXPERIMENT ON BANK CLIENTS. ON AVERAGE, INDIVIDUALS ARE WELL INFORMED ABOUT CURRENT INFLATION AND ARE CONCERNED ABOUT ITS IMPACT ON WEALTH. YET, MOST INDIVIDUALS ARE NOT AWARE OF HOW INFLATION ERODES NOMINAL POSITIONS. ONCE THEY RECEIVE INFORMATION ON THIS EROSION CHANNEL, THEY UPDATE PERCEPTIONS AND EXPECTATIONS ABOUT OWN NET NOMINAL POSITIONS. LEARNING ABOUT THE INFLATION-INDUCED EROSION OF NOMINAL POSITIONS CAUSALLY AFFECTS CHOICES IN HYPOTHETICAL REAL-ESTATE TRANSACTIONS AND ACTUAL CONSUMPTION. THE FINDINGS SUGGEST THAT HOUSEHOLD WEALTH MEDIATES THE SENSITIVITY OF CONSUMPTION TO INFLATION ONCE HOUSEHOLDS ARE AWARE OF THE BALANCE-SHEET EFFECTS OF INFLATION.