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Photo: Adelheid Rutenburges

Photo: Adelheid Rutenburges

Photo: Adelheid Rutenburges

Photo: Adelheid Rutenburges

Research focus

Our research focuses on behavioral and social finance, on current topics from corporate finance, and on (quantitative) financial risk management.

Main publications

Google Scholar

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 in a sample of structured financial products on the German performance index DAX. The study provides evidence that beyond conventional hedging, cross-pricing and cross-issuance of warrants and discount certificates contributes to risk reductions; consequently, these play an important role as risk management tools. Thus, our study emphasizes cross‐pricing from a perspective not previously considered in the literature.



Working papers and work in progress

'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.

'A boon or a bane? An examination of social communication in social trading'

Revision requested at Information Systems Research (a Financial Times top 50 journal)


Social trading is an emerging market in the sharing economy, allowing inexperienced investors (copiers) to automatically follow the trades of experts (leaders) in real time. We use a separable temporal exponential random graph model (STERGM) to analyze the link formation and dissolution of a large social trading network. In contrast to traditional social networks, social trading networks are characterized by a rapid dissolution of links, thereby increasing the importance of studying network dissolution. We investigate how social communication, along with financial performance and demographics, affects dynamic network evolution and address the existing dependence among copier-leader links. Our results show that social communication, financial performance, and demographic factors are important determinants of link formation. However, once a link is formed, copiers mainly focus on financial performance and communication but not on demographic factors. Thus, the determinants of link formation and dissolution are asymmetric. Different types of social communication, such as posts and comments, have different implications for link formation and dissolution. Our findings provide important implications for both investors and social trading platforms.

Working Paper

'Managerial personality traits and selective hedging'

Revision requested at the Journal of Business Ethics (a Financial Times 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.

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

'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 investigate the effects 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. In North 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 higher buy-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


Research projects

Research on Investor Trading Behavior

Using brokerage data, we 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 our research on social trading, we 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

Our 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.


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.

Further information:

The University for the Information Society