SAFE working paper
https://safe-frankfurt.de/de/publikationen/working-papers.html
Refine
Year of publication
- 2021 (32) (remove)
Document Type
- Working Paper (32)
Language
- English (32)
Has Fulltext
- yes (32) (remove)
Is part of the Bibliography
- no (32)
Keywords
- COVID-19 (4)
- ESG (4)
- ETFs (2)
- ambiguity (2)
- climate change (2)
- green finance (2)
- volatility (2)
- Algorithmic transparency (1)
- Bank Bailout (1)
- Bank Recapitalization (1)
- Belief up-dating (1)
- Beliefs (1)
- Board Appointments (1)
- Bond risk premia (1)
- C corporations (1)
- Capital Purchase Program (1)
- Centrality (1)
- China (1)
- Corporate Social Responsibility (1)
- Covid-19 (1)
- DCC-GARCH (1)
- DSGE models (1)
- Dictionary (1)
- Digitalized Markets (1)
- Disposition Effect (1)
- Dividend Payments (1)
- ESG Rating Agencies (1)
- Equity Premium (1)
- Expectations (1)
- Explainable machine learning (1)
- Financial Crises (1)
- Financial Market Cycles (1)
- Fiscal theory of the price level (1)
- Formative experiences (1)
- Fund Flows (1)
- Government debt (1)
- Granger Causality (1)
- High Frequency Data (1)
- High-frequency event study (1)
- Hong test (1)
- Household Finance (1)
- Information processing (1)
- International Finance (1)
- Investor sentiment (1)
- LSTM neural networks (1)
- Machine learning (1)
- Market efficiency (1)
- Monetary Policy Surprises (1)
- NLP (1)
- Network theory (1)
- Nonlinear solution methods (1)
- Obfuscation (1)
- Oil market (1)
- Portfolio Rebalancing (1)
- Portfolio choice (1)
- Price Competition (1)
- Price Pressures (1)
- Public financial news (1)
- Rational Inattention (1)
- Responsible investment (1)
- Retail Investor (1)
- Risk taking (1)
- S corporations (1)
- S&P 500 (1)
- Social media (1)
- Socially responsible investing (1)
- Stock market (1)
- Sustainable Investments (1)
- TARP (1)
- Tax Cuts and Jobs Act (1)
- Twitter (1)
- XAI (1)
- age (1)
- ambiguity premium (1)
- anomalies (1)
- asset pricing (1)
- bank (1)
- banks (1)
- behavioral economics (1)
- belief effect (1)
- belief estimation (1)
- belief updating (1)
- benchmarks (1)
- bid-ask spread (1)
- bubbles (1)
- call auctions (1)
- climate risk (1)
- compliance behavior (1)
- confirmatory biases (1)
- consumer protection (1)
- corporate governance (1)
- corporate taxation (1)
- credence goods (1)
- designated market makers (1)
- discrimination (1)
- employees (1)
- endogenous information acquisition (1)
- erm structure of interest rates (1)
- factor timing (1)
- financial advice (1)
- financial market (1)
- financial risk-taking (1)
- financing (1)
- fintech (1)
- health (1)
- household finance (1)
- institutional investors (1)
- investment biases (1)
- investor behavior (1)
- labels (1)
- laboratory experiment (1)
- laboratory experiments (1)
- lending (1)
- lottery-type assets (1)
- mandatory disclosure (1)
- marginal propensity to consume (1)
- market discipline (1)
- market price (1)
- market-based (1)
- measure of ambiguity (1)
- media polarization (1)
- motivated beliefs (1)
- net zero transition (1)
- option prices (1)
- patents (1)
- persistence (1)
- saving (1)
- sentiment (1)
- source dependence (1)
- spillover effects (1)
- stock market crisis (1)
- sustainability (1)
- sustainable finance (1)
- tax cut (1)
- tax intervention (1)
- taxonomies (1)
- time series momentum (1)
- trading activity (1)
- trend chasing (1)
- valuation ratios (1)
- workforce (1)
- financial literacy (1)
Institute
- House of Finance (HoF) (32) (remove)
302
The FOMC risk shift
(2021)
We identify a component of monetary policy news that is extracted from high-frequency changes in risky asset prices. These surprises, which we call “risk shifts”, are uncorrelated, and therefore complementary, to risk-free rate surprises. We show that (i) risk shifts capture the lion’s share of stock price movements around FOMC announcements; (ii) that they are accompanied by significant investor fund flows, suggesting that investors react heterogeneously to monetary policy news; and (iii) that price pressure amplifies the stock market response to monetary policy news. Our results imply that central bank information effects are overshadowed by short-term dynamics stemming from investor rebalancing activities and are likely to be more difficult to identify than previously thought.
330
We analyze the impact of decreases in available lending resources on quantitative and qualita- tive dimensions of firms’ patenting activities. We thereby make use of the European Banking Authority?s capital exercise to carve out the causal effect of bank lending on firm innovation. In order to do so we combine various datasets to derive information on firms’ financials, their patenting behaviors, as well as their relationships with their lenders. Building on this self- generated dataset, we provide support for the “less finance, less innovation” view. At the same time, we show that lower available financial resources for firms lead to improvement in the qualitative dimensions of their patents. Hence, we carve out a “less finance, less but better innovation” pattern.
326
This paper sets up an experimental asset market in the laboratory to investigate the effects of ambiguity on price formation and trading behavior in financial markets. The obtained trading data is used to analyze the effect of ambiguity on various market outcomes (the price level, volatility, trading activity, market liquidity, and the degree of speculative trading) and to test the quality of popular empirical market-based measures for the degree of ambiguity. We find that ambiguity decreases market prices and trading activity; ambiguity leads to lower market liquidity through wider bid-ask spreads; and ambiguity leads to less speculative trading. We also find that popular market-based measures of ambiguity used in the empirical literature do not seem to correctly capture the true degree of ambiguity.
311
The pricing of an ambiguous asset, whose cash flow stream is uncertain, may be affected by three factors: the belief regarding the realization likelihood of cash flows, the subjective attitude towards risk, and the attitude towards ambiguity. While previous literature looks at the total price discount under ambiguity, this paper investigates with laboratory experiments how much effect each factor can induce. We apply both non-parametric and parametric methods to cleanly separate the belief effects, the risk premiums, and the ambiguity premiums from each other. Both methods lead to similar results: Overall, subjects have substantial ambiguity aversion, and ambiguity premiums account for the largest price deviation component when the degree of ambiguity is high. As information accumulates, ambiguity premiums decrease. We also find that beliefs do influence prices under ambiguity. This is not because beliefs are biased towards either good or bad scenarios per se, but because subjects display sticky belief updating as new information becomes available. The clear separation performed in this paper between belief and attitude also enables a more accurate estimation of the parameter of ambiguity aversion compared to previous studies, since the effect of beliefs is partialled out. Overall, we find empirically that both factors, belief and attitude towards ambiguity, are important factors in pricing under ambiguity.
327
Non-standard errors
(2021)
In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in sample estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty: non-standard errors. To study them, we let 164 teams test six hypotheses on the same sample. We find that non-standard errors are sizeable, on par with standard errors. Their size (i) co-varies only weakly with team merits, reproducibility, or peer rating, (ii) declines significantly after peer-feedback, and (iii) is underestimated by participants.
316
We empirically examine the Capital Purchase Program (CPP) used by the US gov- ernment to bail out distressed banks with equity infusions during the Great Recession. We find strong evidence that a feature of the CPP – the government’s ability to ap- point independent directors on the board of an assisted bank that missed six dividend payments to the Treasury – helped attenuate bailout-related moral hazard. Banks were averse to these appointments – the empirical distribution of missed payments exhibits a sharp discontinuity at five. Director appointments by the Treasury led to improved bank performance, lower CEO pay, and higher stock market valuations.
308
We conducted a large-scale household survey in November 2020 to study how altering the time frame of a message (temporal framing) regarding an imminent positive income shock affects consumption plans. The income shock derives from the abolishment of the German solidarity surcharge on personal income taxes, effective in January 2021. We randomize across survey participants whether their extra disposable income is presented in Euros per month, Euros per year, or Euros per ten year-period. Our main findings are as follows: In General, we find our respondents’ intended Marginal Propensity to Consume (MPC) is 28.2%. Across all three treatments, the MPC is a positive function of age and being female while it is a negative function of the income increase’s size, self- control, and being unemployed. Temporal framing effects are statistically and economically highly significant as we find the monthly treatment groups’ average MPC 5.6 and 8.7 percentage points higher compared to the yearly and 10-yearly treatment groups. We will be able to analyze the real consumption behavior of households throughout 2021 based on re-surveying the participants as well as by using transaction-based bank data.
310
The salience of ESG ratings for stock pricing: evidence from (potentially) confused investors
(2021)
We exploit the a modification to Sustainanlytics’ environmental, social, and governance (ESG) rating methodology, which is subsequently adopted by Morningstar, to study whether ESG ratings are salient for stock pricing. We show that the inversion of the rating scale but not new information leads some investors to make incorrect assessments about the meaning of the change in ESG ratings. They buy (sell) stocks they misconceive as ESG upgraded (downgraded) even when the opposite is true. This trading behavior exerts transitory price pressure on affected stocks. Our paper highlights the importance of ESG ratings for investors and consequently for asset prices.
299
Although the elderly are more vulnerable to COVID-19, the empirical evidence suggests that they do not behave more cautiously in the pandemic than younger individuals. This theoretical model argues that some individuals might not comply with the COVID-19 measures to reassure themselves that they are not vulnerable, and that the incentives for such self-signaling can be stronger for the elderly. The results suggest that communication strategies emphasizing the dangers of COVID-19 could backfire and reduce compliance among the elderly.
319
Many equity markets combine continuous trading and call auctions. Oftentimes designated market makers (DMMs) supply additional liquidity. Whereas prior research has focused on their role in continuous trading, we provide a detailed analysis of their activity in call auctions. Using data from Germany’s Xetra system, we find that DMMs are most active when they can provide the greatest benefits to the market, i.e., in relatively illiquid stocks and at times of elevated volatility. Their trades stabilize prices and they trade profitably.