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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 investigates the relationship between the dark triad personality traits (Machiavellianism, narcissism, and psychopathy) of managers and the practice of reporting manipulation using a primary survey of 837 professionals working in accounting and finance departments. We find that (a) managers who exhibit dark personality traits are associated with a higher prevalence of fraudulent accounting practices in their accounting and finance departments and (b) traditional risk management mechanisms are only partially effective in mitigating this effect. Internal audits are effective in curtailing the negative behavior of managers with dark triad traits only if these internal audits are outsourced and performed by independent external personnel but not if they are conducted by internal personnel. This suggests that managers with dark triad traits are able to manipulate other employees quite effectively. Consequently, having external personnel perform the auditing task provides a safeguard against such unethical practices and manipulation. This finding has strong practical implications, as it provides support for outsourcing internal audits rather than keeping them in-house.


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.


We study the relationship between risk managers' dark triad personality traits (Machiavellianism, narcissism, and psychopathy) and their selective hedging activities. Using a primary survey of 412 professional risk managers, we find that managers with dark personality traits are more likely to engage in selective hedging than those without. This effect is particularly pronounced for older, male, and less experienced risk managers. The effect is also stronger in smaller firms, less centralized risk management departments, and family-owned firms.


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


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.

Social trading, communication, and networks

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

Shareholder activism: international evidence


Shareholder activism has sharply increased over the past decade. We document a discrepancy between abnormal announcement returns (CAARs) and two-year buy-and-hold abnormal returns (BHARs) of activist engagements. Activist targets that earn the highest two-year BHARs do not yield significantly higher CAARs around engagement announcements than the remaining targets. This indicates that financial markets cannot distinguish between long-term top-performing engagements and other engagements at the announcement of an engagement. Even the best activists frequently suffer low or negative two-year BHARs. Short-term CAARs around engagement announcements are linked to activist characteristics, whereas long-term results are not. Long-term top-performing targets have significantly different firm characteristics compared to the remaining targets. However, activists do not solely engage in such targets, and financial markets are unable to initially identify such firms. Thus, we conclude that the long-term performance of target firms seems to be driven by a combination of target firm characteristics, investor skills, and luck, but such performance provides no reasonable follow-on investment strategy for investors. Working Paper

Leverage constraints and investors' choice of underlyings

Financial support by the  Dr. Werner Jackstädt-Stiftung is gratefully acknowledged.

This paper investigates the impact of a 2018 intervention by the European Securities and Markets Authority (ESMA) limiting the amount of leverage that investors can take on their trading activities. While it successfully reduced the usage of leverage, investors shifted their trading activities to riskier assets in the process, consistent with the idea that leverage-constraint investors substitute leverage with riskier securities. Thus, the intervention was not as effective as the reduction in leverage suggests. Consistent with the notion that risky investment strategies spread through the population, I find some evidence of a spillover effect to investors who are not affected by the regulatory intervention. Working Paper


Arbitrage in the market for cryptocurrencies

Journal of Financial Markets, 100817


Arbitrage opportunities in markets for cryptocurrencies are well documented. In this paper, we confirm that arbitrage opportunities exist; however, their magnitude decreased greatly from April 2018 onward. Analyzing various trading strategies, we show that starting 2019, it is hardly possible to exploit existing price differences. We discuss and test several mechanisms that may be responsible for the increased market efficiency and find that particularly informed trading is correlated with a reduction in arbitrage opportunities. 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:

Arnold, M.; Pelster, M.; Subrahmanyam, M.G. (2021): “Attention triggers and investors` risk-taking”, Journal of Financial Economics.

The University for the Information Society