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Photo: Adelheid Rutenburges

Photo: Adelheid Rutenburges

Photo: Adelheid Rutenburges

Photo: Adelheid Rutenburges

Research focus

The research of the professorship for finance focuses on behavioral and social finance and on methods of quantitative financial risk management. Current research projects investigate the impact of attention on the risk taking of retail investors, peer effects in investment decisions, the impact of dependency structures on asset pricing, and determinants of corporate risk management decisions.

Personal website

Current projects

'Social Interactions and (Financial) Decision-Making'
(c) Florian Stolle


Financial support by the Deutsche Forschungsgemeinschaft (PE 2525/5-1) is gratefully acknowledged.

This project studies the impact of social interactions on investors' financial decision-making and risk taking. In particular, we study preferences for dependencies between payoffs for own prospects in relation to payoffs of peers' prospects and the implications of such dependencies for investors' risk taking.

'Managerial personality traits and selective hedging'

Revision requested at the Journal of Business Ethics (a Financial Times top 50 journal)


Financial support by the Frankfurter Institut für Risikomanagement und Regulierung (FIRM) is gratefully acknowledged.

„[...] the most significant risk management failures in recent history have their roots in psychology, and [...] the practice of risk management can be improved by incorporating an explicit psychological dimension.“ (Hersh Shefrin, 2016)

In contrast to theoretical predictions of optimal corporate hedging policies, firms engage in speculative behavior and change the composition of their derivative portfolios on a regular basis. As a direct consequence, hedging ratios show significantly higher volatility than expected, taking into account the relevant fundamentals. The literature refers to the adaption and timing of hedging transactions based on market views as selective hedging. As of today, "the widespread practice of managers speculating by incorporating their market views into firms' hedging programs ("selective hedging") remains a puzzle" (Adam et al., 2017). This project studies how risk managers' personality traits influence their decision-making processes and affect firms' selective hedging behavior.

'Shareholder activism: international evidence'


Shareholder activism has sharply increased over the past decade and spread both across countriesand among different types of investors. Today, 50% of all engagements occuroutside North America, with non-hedge fund investors accounting for one-third of all engagements. We investigatetheeffects and drivers of hedge fund and non-hedge fund activism using an international dataset of 2,689 activist engagements across 44 countries between 2008 and 2019. Activist investments in North America, on average, yield the largest immediate positive stock market returns and buy-and-hold returns, followed by engagements in Europe and the Asia-Pacific region. InNorth America,short-term abnormal returns for hedgefunds are at a similar levelas those fornon-hedge funds,but in Europe and the Asia-Pacific region, they are higher for non-hedge funds. However, globally,hedge funds achieve higherbuy-and hold returns and are more successful than non-hedge funds in implementing change in target firms. Over time, our results suggest unfulfilled investorexpectations, as announcement returns are increasing but (abnormal) buy-and-hold returns and the impact on performance measures of target firms are decreasing for both hedge fundsand non-hedge funds. Working Paper

'Dark Triad Managerial Personality and Financial Reporting Manipulation'

Revision requested at the Journal of Business Ethics (a Financial Times top 50 journal)


Every now and then, we observe corporate accounting scandals that annihilate billions of market capitalization. Examples of these are numerous, with the Wirecard scandal being the most recent, and earlier scandals including Enron and WorldCom. In general, corporate fraud is a topic that draws constant attention from the public, regulatory bodies, and academia. However, most of the time, the attention starts too late, namely after the costs for shareholders, creditors, and employees, and possibly society of a large fraud case are already in the millions. 
These large scale accounting scandals often involve top managers who are responsible for initiating, maintaining, and hiding these fraudulent practices for long periods of time. For any individual to successfully keep up a long-ranging fraud, it can be argued, requires certain predispositions. Unethical decision-making, lying for one's own gain, a sense of superiority and lack of guilt and remorse are all consequences of being a dark-triad personality. According to psychology research, such traits are particularly prevalent among fraud offenders. 
In this project, we use theory and measures from personality psychology to investigate the effects of management personality traits on fraudulent accounting practices. We find a strong positive relationship between dark triad personality traits of managers and accounting manipulation. Our results indicate that for a one-unit increase in the dark triad score, the odds of engaging in fraudulent accounting increase by a factor of 2.49. 
We also find that traditional risk control mechanisms such as internal audit departments staffed with internal personnel and whistleblower regulations do not easily mitigate these practices. However, having an independent and outsourced internal audit function helps to successfully curb accounting fraud. Specifically, such an externally staffed audit function leads to a roughly 60% decrease of the negative impact of managers with dark triad personality on companies' accounting practices. Consequently, having externals perform the task provides a safeguard against such manipulation. This finding has strong practical implications as it provides support for outsourcing such activities rather than keeping them in-house. 

Working Paper

Selected publications

Selected 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)

Koester, H.; Pelster, M. (2017): 'Financial penalties and bank performance', Journal of Banking and Finance 79, 57-73.

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.; 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.

Further information:

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